Transcript Slide 1
OFFER FOR SALE (OFS) OFFER FOR SALE Offer for sale (OFS) enables stakeholders of a company to sell their shareholdings. OFFER FOR SALE OFS 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 SALE Convenient as compared to traditional mechanism of Follow-on Public Offer (FPOs) Involves less paper work since it is a system based bidding platform Consumes less time as it’s an automated process Minimum time involved between application & allotment of shares Cost effective; usually companies offer discount on floor price to retail investors which is one of the key reasons for retail investors to participate OFFER FOR SALE How can one participate in OFS? Any investor with a trading and demat account participate in OFS. can CURRENT ACCOUNT DEFICIT OFFER FOR SALE Let us see the formula of the Current Account Balance (CAB) CAB = X - M + NI + NCT X = 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. ] All market participants like individuals, mutual funds, foreign institutional [Workers' Remittances (FIIs), insurance companies, (unilateral), Donations, Aidsinvestors & NCT = Net current transfers Grants, Official, Assistance and corporates, other qualified institutional Pensions etc] bidders (QIBs), HUFs, etc. can bid/participate in the OFS process. OFFER FOR SALE Who 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. OFFER FOR SALE What is the meaning of floor price under OFS? OFFER FOR SALE Floor 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 SALE The 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 SALE However, 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 SALE An 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 SALE In 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. CURRENT ACCOUNT DEFICIT OFFER FOR SALE Let us see the formula of the Current Account Balance (CAB) CAB = X - M + NI + NCT X = 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 Hope you have understood the Pensions etc] concept of ‘Offer For Sale (OFS)’. 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