A private company launches an initial public offering (IPO) for additional funding. The company sells shares to outside investors so that it can gain access to funds for various purposes. This includes growth and expansion of the company.
However, the company’s financial problems do not end with an IPO. Sometimes, a company may need additional capital to meet its goals. That’s the time such companies can opt to go for an Offer for Sale (OFS).
How OFS works?
In an OFS, promoters of a company dilute their stake by selling their shares on an exchange platform. Anyone including retail investors, companies, Foreign Institutional Investors (FIIs) and Qualified Institutional Buyers (QIBs) can bid on these shares.
How to bid in an OFS?
In an OFS, a buyer has to provide a bid in order to acquire the shares. The company sets a ‘floor price.’ Buyers cannot bid at a price below the floor price. Once the bids are placed, shares are allocated to the different buyers. There is no minimum limit to participate in an OFS. A buyer can bid for even a single share in the OFS process.
How to apply for an OFS?
As an individual investor, you can apply in the retail category of the OFS. In this category, your total bid value should not exceed Rs 2 lakh rupees. Otherwise, it becomes ineligible. You also require a demat account and a trading account in order to participate in an OFS. In case you are an offline investor, you can still place your bids through an assigned dealer.
When to invest in an OFS?
Companies use the OFS route to raise additional capital and dilute promoters’ holdings. This is a much simpler process compared to other forms of raising money.
It is ideal to invest in an OFS if the company has a good reputation and future growth potential.
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