Contents
Definition
An Offer for Sale (OFS) is a mechanism introduced by SEBI in 2012 (via circular SEBI/CIR/MRD/DP/01/2012) that allows promoters and large shareholders of listed companies to divest their shareholding directly through the stock exchange's bidding platform — without issuing a prospectus or going through the full IPO/FPO route. OFS is available only to companies in the top 200 by market capitalisation (or those required to achieve minimum public shareholding). The seller must hold at least 10% of the company's paid-up equity capital. This route is widely used by promoters (including the Government of India) for strategic divestment and MPS compliance.
Mechanics & Timeline
OFS is notable for its speed relative to IPO/FPO:
- Announcement: Seller announces intent to the stock exchange at least 2 trading days before the offer opens (T–2 disclosure). BSE/NSE publish OFS details on their websites.
- Floor price: Seller sets a minimum price floor (publicly disclosed at T–2). Bids below floor are rejected.
- Bidding window: Single day (9:15 AM–3:30 PM) for non-retail investors; retail investors (bids ≤ ₹2 lakh) may have one additional day. Total window ≤ 2 days.
- Bid process: Investors place bids through their brokers on the exchange platform; multiple price points allowed. OFS uses a "cut-off" price mechanism — all successful bidders who bid at or above cut-off receive shares at the cut-off price (uniform price auction).
- Allotment: Priority given to retail investors (minimum 10% reservation); remaining allocated to institutions and HNIs.
- Settlement: T+2 rolling settlement; shares credited to Demat accounts within 2 working days.
No fresh shares are created — OFS only transfers existing shares. Company receives no proceeds; only the selling shareholder does.
Tax Treatment
- For the seller: Gains taxed as capital gains (STCG at 20% u/s 111A if held <12 months; LTCG at 12.5% u/s 112A above ₹1.25 lakh if held ≥12 months, with STT paid on sale).
- Government of India as seller: Divestment proceeds go to the Consolidated Fund; no capital gains tax applicable to sovereign sellers.
- For the buyer: Cost of acquisition = OFS cut-off price. Holding period begins from T+2 settlement date. Subsequent sale attracts normal equity STCG/LTCG rules.
- No dividend-equivalent treatment: OFS is purely a secondary market transaction; no deemed dividend implications.
Investor Protection
- Price floor: Mandatory floor price prevents distress selling below market value; floor is publicly disclosed at T–2, enabling market price discovery before the window opens.
- Retail reservation: Minimum 10% of OFS quantity reserved for retail investors (bids ≤ ₹2 lakh); if retail portion is undersubscribed, it can be carried over to the second day.
- Exchange-operated platform: Bids go directly through NSE/BSE trading infrastructure — no broker discretion in allocation; exchange publishes real-time bid data.
- T+2 disclosure: Mandatory advance notice gives all investors time to evaluate and place bids; no surprise same-day announcements.
- No lock-in post-OFS: Buyers receive freely tradeable shares immediately after T+2 settlement.
Worked Example
Coal India OFS — January 2015: The Government of India divested a 10% stake in Coal India Limited via OFS.
- Shares on offer: ~632 million shares (~10% of paid-up capital).
- Floor price: ₹358 per share.
- Subscription: Oversubscribed approximately 1.8x (total bids ~₹23,000 crore against issue of ₹22,558 crore at floor).
- Cut-off price: ₹358 (at floor; institutional demand absorbed entire issue at floor price).
- Retail discount: Government offered 5% discount to retail investors on the cut-off price (₹340 effective for retail).
- Proceeds: ~₹22,558 crore to Government of India (used for fiscal deficit management).
Coal India OFS was executed in a single day on the NSE/BSE OFS platform — illustrating how the mechanism enables large-scale sovereign divestment without market disruption associated with block deals or open-market sales.
See Also
- IPO (Initial Public Offering)
- FPO (Follow-on Public Offer)
- Share Buyback
- Equity Investing Guide
- Stock Explorer
Primary Source
SEBI Circular SEBI/CIR/MRD/DP/01/2012 — OFS Framework — sebi.gov.in
MintByte is registered with SEBI as an Investment Adviser (ARN-314872) and APMI (APRN-01658). This glossary entry is for educational purposes only and does not constitute investment advice or a recommendation to bid in any OFS. Past OFS subscription rates are not indicative of future results.