OFS

An Offer for Sale (OFS) is a mechanism through which existing shareholders of a listed company - typically promoters, private equity investors, or the government - sell their shares to public investors through the stock exchange platform. Unlike an IPO, no new shares are issued and the company does not receive any proceeds; the money goes to the selling shareholders.

SEBI introduced the OFS framework in 2012 to provide an efficient and transparent method for large stake sales. OFS can only be used by shareholders holding more than 10% stake in the company, and only for companies in the top 200 by Market Cap. The seller must announce the OFS at least one trading day in advance, specifying the quantity offered and the floor price (minimum acceptable price).

The Indian government has been the largest user of the OFS mechanism to divest its stakes in public sector companies. Disinvestment targets are set in the annual Union Budget, and OFS of companies like Coal India, ONGC, Indian Oil, Hindustan Zinc, and BHEL have been regular features. For example, a typical government OFS might offer 3% of Coal India at a 3-5% discount to the prevailing market price.

The OFS process runs on a single trading day. Institutional investors (mutual funds, insurance companies, FPIs) and retail investors bid through their brokers, specifying quantity and price (at or above the floor price). Retail investors receive a reservation of at least 10% of the offer size and often get a 5% discount to the clearing price. Allocation follows a price-priority method - highest bidders are allotted first.

OFS pricing is structurally below the prevailing market price - the floor price is typically set at a discount, and retail investors get an additional discount. The structure also creates temporary selling pressure on the stock, and large stake sales sometimes signal that the promoter or government needs liquidity, which carries its own informational content.