In order to grow their operations into new markets or areas, corporations frequently need to acquire outside finance or investment. They might use it to ward off rivals or invest in research and development. And while businesses do strive to finance these investments with revenues from current operations, it is frequently preferable to turn to outside lenders or investors.
One such gateway to raise capital is through the process of Offer for Sale (OFS). It is a simpler mechanism for promoters in public companies to sell their shares and reduce their ownership in a transparent manner using the exchange platform.
Previously, only the promoters were permitted to participate in the OFS to "sell" or "dilute" their holdings in order to reach a minimum public ownership of 25%. However, the section has now been opened up to qualified firms' non-promoters who own at least 10% of the company's share capital.
How to apply for OFS?
Retail investors may put a price bid or a cut-off price bid in accordance with SEBI regulations. Based on the submitted bids, the corporation will choose the cut-off price. You can instruct the broker to put a bid at a specific price or at cut-off if you have a demat account. If you have already enrolled, another option is to apply via the exchange website.
You are allowed to submit numerous bids at various rates and to modify your bid at any time during the day. Your account must have enough up-front money to cover the total bid amount. At day's end, allocation information will be provided, and any extra money from non-allotment or partial allocation will be returned to the trading members the same day. The assigned shares will show up in your account by the next trading day.
In the event of an oversubscription, retail bids at the cut-off price would be distributed proportionately, as mandated by SEBI. Make sure you have selected the retail category (RS for NSE and RI for BSE) while applying. If you do not pick this option, you will forfeit the 5% discount.
It's crucial to remember that mutual funds and insurance companies, and retail investors will each receive a minimum of 25% and 10% of the issued shares, respectively. For retail investors, the total bid cannot exceed ₹2 lakh. In other words, a single investor can use a single account to make several bids in an OFS. However, the offers become inadmissible if the investor makes several bids that total more than ₹2 lakh.
Generally speaking, OFS is a smart way to invest in significant corporations. The entire OFS procedure is straightforward and paperless. It is open to all retail investors including individual investors. They must, however, have both a trading account and a demat account in order to achieve so.