Issue Size Calculator

After arriving at the valuations of the company, a prospective company for IPO can dilute minimum 25% of the valuations. The amount so diluted is called the Issue Size in IPO. The Issue size is further split into Fresh Issue and Offer for Sale.

Cr.
(Find)
%
Issue Split
Type Split % Issue Value (Cr.)
Fresh Issue
OFS
All Amounts are in ₹ Cr.

What is OFS?

OFS, or Offer for Sale, is a method of selling shares in a company that is listed on a stock exchange. This method is used by promoters, major shareholders, or the company itself to sell their shares to the public. It is a mechanism introduced by SEBI (Securities and Exchange Board of India) that allows promoters and existing shareholders of a company to sell their shares through the stock exchange platform to the public.

What are the rules and regulations of OFS?

  • Minimum of 25% of the shares/units offered shall be reserved for mutual funds and insurance companies, subject to allocation methodology. Any unsubscribed portion thereof shall be available to the other bidders.
  • No allocation will be made in case of order/ bid is below floor price
  • No single bidder other than mutual funds and insurance companies shall be allocated more than 25% of the size of offer for sale
  • Minimum 10% of the offer size shall be reserved for retail investors. For this purpose, retail investor shall mean an individual investor who places bids for shares of total value of not more than INR 2 lakhs aggregated across the exchanges. If the cumulative bid value across exchanges exceeds INR 2 lakhs in the retail category, such bids shall be rejected
  • Any unsubscribed portion of non-retail category after allotment shall be eligible for allocation in the retail category and vice versa
  • The size of the offer shall be a minimum of INR 25 Cr. However, the size of offer can be less than INR 25 Cr. by promoter(s) or promoter group entities so as to achieve minimum public shareholding in a single tranche.
  • Shareholders with more than a 20% stake in the company before the IPO will not be allowed to sell more than 50% of their shares.

Why is there a need for OFS?

Overall, OFS is a convenient way for promoters, previous investors or other majority shareholders to sell their shares without going through the traditional process of selling shares in the secondary market. It allows them to sell large amounts of shares quickly without impacting the market price of the shares & raise funds.

What are the benefits of investing in OFS?

  • Pros:
    • Market liquidity: OFS allows existing shareholders to sell their shares directly to the public, increasing the liquidity of the company's stock. This can be beneficial for shareholders looking to monetize their investments.
    • Price discovery: OFS is conducted through a transparent bidding process, which helps in determining the fair market price for the shares being offered. This can lead to efficient price discovery and reduce information asymmetry.
    • Quick execution: OFS transactions can be executed relatively quickly, especially compared to other methods like initial public offerings (IPOs). This speed can be advantageous for shareholders looking for a swift exit or to capitalize on market conditions.
    • Lower costs: OFS typically involves lower costs compared to IPOs since it eliminates many of the expenses associated with the initial public offering process, such as underwriting fees and extensive marketing efforts.

What are the disadvantages of investing in OFS?

Market perception: The sale of shares through an OFS can sometimes be viewed negatively by the market, as it may indicate that existing shareholders are reducing their stake or have lost confidence in the company.

  • Limited opportunity for capital raising: Unlike an IPO, where new shares are issued, OFS only involves the sale of existing shares. This means that the company itself does not directly benefit from any capital raised through the offering, limiting its ability to raise funds for expansion or other purposes.
  • Dilution of ownership: OFS can lead to a dilution of ownership for existing shareholders if they sell a significant portion of their stake. This dilution can impact control and voting rights within the company.
  • Market volatility: The success of an OFS depends on market conditions and investor appetite for the shares being offered. If the market is experiencing volatility or if there is limited demand for the shares, it can impact the pricing and execution of the offering.

How to participate in OFS?

Buyers & sellers can participate on the e-OFS platform of NSE/BSE & bid the prices accordingly. Even the option is available from the trading platform or mobile application like Kite, Upstox, etc.

Who can invest in an Offer for sale?

The following are lists of investor categories registered with NSE that can participate in OFS.

  • Retail Investors
  • NRIs
  • Foreign Portfolio Investors
  • Qualified Institutional Buyers
  • Corporates
  • Mutual Funds
  • Insurance Companies
  • Trusts & HUF

What is the bidding process in OFS?

In an OFS, the seller sets a floor price, which is the minimum price at which they are willing to sell their shares. The floor price is disclosed to the stock exchange and the public. The seller can also specify a discount on the floor price, which can attract more buyers. Once the floor price is set, the OFS opens for bidding, and buyers can bid for the shares. The bidding is done online through the stock exchange's bidding platform. The bidding process usually lasts for a few hours, and buyers can bid for any number of shares they want.

What is the need of OFS element in an IPO?

OFS can be beneficial to provide an opportunity for existing shareholders, such as founders, early investors, or employees, to sell their shares and convert their equity into cash. By offering shares through OFS, the company can also attract a broader range of investors. This helps in diversifying the shareholder base, spreading ownership among a larger number of individuals or institutions. A diverse shareholder base can enhance market liquidity, stability, and potentially attract more interest from the investment community.

What is the difference between OFS, FPO and IPO?

In Initial Public Offering (IPO), the company or the Issuer becomes a publicly-traded company as it gives shares to the general public while raising fresh capital. In Follow-on Public Offering (FPO), the publicly listed company raises capital by issuing new shares to the investors or existing shareholders. In OFS, it doesn't raise fresh capital but dilutes the stake of the promoters/shareholders holding a minimum 10% of capital shares.

How allotment of shares takes place in OFS?

After the bidding process is completed, the seller evaluates the bids and decides which bids to accept. The shares are then sold to the highest bidders at the price they bid. The settlement of the shares is done through the stock exchange, and the shares are transferred to the buyers' demat accounts.

Let's say major shareholders of the Tata Company want to sell 1 million shares of its stock to the public. The current market price of each share is Rs. 100. The major shareholders decide to use the OFS mechanism to sell these shares. Now, they approach the stock exchange and inform them of their intention to sell the shares through OFS. The stock exchange, in turn, informs all its members (brokers) about the upcoming OFS.

Interested buyers can place their bids through their brokers at any price above the floor price (minimum price) set by the major shareholders. For example, they may set the floor price at Rs. 95 per share. Now, let's assume that a buyer places a bid for 1000 shares at Rs. 105 per share while another buyer places a bid for 2000 shares at Rs. 102 per share. These bids get aggregated on the stock exchange's platform.

At the end of the bidding period, the shares are allocated to the highest bidder(s) at the price they bid. In this case, the first buyer would get 1000 shares at Rs. 105 per share, and the second buyer would get 1000 shares at Rs. 102 per share. The remaining shares are then sold at the floor price to the public if there are any unsold shares left.

Summary

In conclusion, OFS is a method of selling shares in a listed company, where the seller sets a floor price, and buyers bid for the shares online. It is a convenient way for promoters, companies, existing investors or major shareholders to sell their shares quickly and efficiently. Understanding OFS is important for investors who want to participate in such offerings and potentially benefit from buying shares at a discount. The participation is easily possible via broker's mobile application & the transaction gets settled in t+1 day.

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