OFFER FOR SALE (OFS)

Offer for sale (OFS) enables stakeholders of a company to sell their shareholdings.OFFER FOR SALE

OFFER FOR SALEOFS is a relatively new mechanism, where sellers use a separate one day window provided by stock exchanges for selling the stake.

The government of India is using the OFS option to offload its shares in public sector companies under its disinvestment programme.

What are the main advantages of OFS?

OFFER FOR SALEConvenient as compared to traditional mechanism of Follow-on Public Offer (FPOs)Involves less paper work since it is a system based bidding platformConsumes less time as its an automated processMinimum time involved between application & allotment of sharesCost effective; usually companies offer discount on floor price to retail investors which is one of the key reasons for retail investors to participate

How can one participate in OFS?OFFER FOR SALE

Any investor with a trading and demat account can participate in OFS.

Let us see the formula of the Current Account Balance (CAB)

CAB = X - M + NI + NCTX = Exports of goods and services M = Imports of goods and services NI = Net income abroad [Salaries paid or received, credit / debit of income from FII & FDI etc.] NCT = Net current transfers [Workers' Remittances (unilateral), Donations, Aids & Grants, Official, Assistance and Pensions etc]

CURRENT ACCOUNT DEFICITAll market participants like individuals, mutual funds, foreign institutional investors (FIIs), insurance companies, corporates, other qualified institutional bidders (QIBs), HUFs, etc. can bid/participate in the OFS process.OFFER FOR SALE

OFFER FOR SALEWho is a retail investor and how to apply?

Any individual investing up to Rs. 2 Lakhs in an OFS is considered a retail investor.An investor applying in the OFS, must pay the entire application amount upfront. And should place the bid during market hours and state the quantity and the floor price. The allotment will be done on a price priority basis, which means those bidding with a higher amount have a greater chance of getting allotment.

What is the meaning of floor price under OFS?OFFER FOR SALE

OFFER FOR SALEFloor price can be defined as minimum price at which an investor can apply under OFS. Any order below the floor price will not be accepted. The seller can disclose the offer price on the day before the shares are offered, but after the closure of trading hours and before the end of business hours of the stock exchanges.

Follow-on Public Offer & Offer for Sale

OFFER FOR SALEThe OFS process is quite similar to the FPO wherein stakeholders approach the market to either Sell their own holding in the company or Issue fresh capital

OFFER FOR SALEHowever, one of the biggest advantages of OFS over FPO is that companies do not have to go through the lengthy process of issuing the prospectus and wait to receive applications from investors before the issue is completed. OFS saves time for both stakeholders and investors.

Offer for Sale & Initial Public Offer (IPO)

OFFER FOR SALEAn IPO involves lengthy process of documentations & approvals from regulators. In an IPO, a company may either Issue fresh shares to the investors to widen their shareholder base or Sell shares of existing investors through OFS or Both

OFFER FOR SALEIn case of fresh issues of shares, the funds are used to expand the existing business of the company.

However, when existing investors sell shares in an issue, both during an IPO or later through the OFS mechanism, this simply results into shift of ownership from the old investors to the new investors.

This will not have any impact on the business of the company in monetary terms as money does not go to the books of the company.

Let us see the formula of the Current Account Balance (CAB)

CAB = X - M + NI + NCTX = Exports of goods and services M = Imports of goods and services NI = Net income abroad [Salaries paid or received, credit / debit of income from FII & FDI etc.] NCT = Net current transfers [Workers' Remittances (unilateral), Donations, Aids & Grants, Official, Assistance and Pensions etc]

CURRENT ACCOUNT DEFICITHope you have understood the concept of Offer For Sale (OFS).OFFER FOR SALE

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