An Offer for Sale (OFS) is a process that enables current shareholders, such as promoters, government bodies, or institutional investors, to divest their ownership in a publicly traded company via the stock exchange platform. In contrast to an Initial Public Offering (IPO), an OFS does not involve the issuance of new shares and therefore does not generate additional capital for the company.
During an OFS, the ownership of existing shares is shifted from the selling shareholders to new investors. The funds from the sale go directly to the shareholders who are selling their stakes, rather than to the company itself.
Key features of an OFS
A key characteristic of an is that it does not involve the issuance of new shares, thereby preventing dilution of the company’s equity. The procedure takes place through a specific bidding window on the stock exchange, allowing investors to place bids at or above a designated floor price established by the seller.
An OFS is known for being relatively fast in execution. In contrast to follow-on public offerings (IPOs), which can span several days or weeks, an OFS is generally completed within a single trading day.
Why do companies and shareholders opt for OFS?
A significant factor in initiating an OFS is compliance with regulatory minimum public shareholding standards. In India, companies listed on the stock exchange must, according to the Securities and Exchange Board of India (), maintain a minimum public shareholding of 25%. Promoters commonly opt for the OFS route to decrease their holdings and fulfil these obligations.
This method is also frequently utilised by early-stage investors, private equity firms, and founders aiming to partially or fully divest their investments while ensuring a systematic sale process. Additionally, governments often resort to OFS transactions as part of their divestment strategies for public-sector companies.
OFS can signal different things depending on the seller
Mohit Gulati, CIO and managing partner of ITI Growth Opportunities Fund, said an OFS allows existing shareholders to sell their stake in a listed company to public investors, with the proceeds going to the selling shareholders rather than the company.
According to Gulati, OFS transactions by private equity or venture capital investors in privately held companies are often viewed positively. Such sales typically indicate that the business has matured sufficiently and no longer requires financial support from early backers. He cited the example of Zomato, where Info Edge partially sold its stake through an OFS during the company’s 2021 IPO. The move was largely interpreted by the market as a sign of confidence in the business’s long-term prospects.
However, Gulati noted that government-led OFS transactions in public sector undertakings (PSUs) are viewed differently. Investors often worry about the possibility of additional stake sales in the future, particularly when the government continues to hold a majority stake and has disinvestment targets to meet. This perceived supply overhang can weigh on stock performance for an extended period. He emphasised that investors should assess who is selling, the size of the stake being sold, the remaining shareholding, and the rationale behind the sale.
Investors should evaluate the purpose behind the OFS
Sunny Agrawal, Head of Fundamental Research at SBI Securities, said companies and promoters commonly use the OFS route to comply with SEBI’s minimum public shareholding requirement of 25%.
Agrawal highlighted that OFS is generally quicker and more efficient than an or Follow-on Public Offer (FPO), as the process is usually completed within one or two trading sessions. He added that the stock exchange-based bidding mechanism also facilitates transparent price discovery.
Before participating in an OFS, Agrawal advised investors to evaluate several factors, including the rationale for the promoter’s stake sale, the promoter’s shareholding after the transaction, the discount offered in the OFS, and the company’s underlying fundamentals.
He pointed out that OFS transactions are particularly common among public sector companies as the government seeks to reduce its ownership and comply with public shareholding norms. As a recent example, he cited the OFS in the Central Bank of India, where the government sold a 4% stake at a floor price of ₹31 per share to move closer to regulatory requirements.
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