Why You Should Subscribe To Offer For Sale (OFS)

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Why You Should Subscribe To Offer For Sale (OFS)

An offer for sale (OFS) is a real-time system based method of buying shares of an existing company in the stock market. It is different from the traditional IPO / FPO (initial public offering / follow-on public offering) method and has several advantages for retail investors like you.

Investing through the OFS method has many advantages for you.

1. Saves money

Generally, companies give a discounted price to the floor price of the share.

(In the past OFS issues, there was a 5% discount to the floor price)

2. Saves time

Under OFS method, the entire process is over in a single trading day and that too, during the normal trading hours ie between 9:15 am and 3:30 pm The company can announce their intention of share sale even one trading day prior to the opening of the offer.

Once the bidding gets over, allotment price is fixed and allocation is done. The successful bidders / applicants are allotted shares directly into their demat account the very next day. In case of partial allotment or no allotment, the refunds will be made on the same day itself.

3. Online investing

You can participate in the process yourself using your online trading account by placing your bids under the OFS section of the website of your broker

4. Minimum paperwork

All you need is a demat account and your PAN (permanent account number)

Unlike in IPO / FPOs, no physical application forms are issued to apply for shares in the OFS process. OFS process is completely system based.

5. Flexibility

You can modify or cancel your bids during the offer timings except in the last 60 minutes ie till 2:30 pm of that day. You can place multiple bids as long as the total value of all your bids does not exceed Rs 2 lacs

6. Transparency

On the OFS day, normal trading in the shares of the company will continue even when the bidding process is on. You have the option to either buy the shares of the company in the normal market or place their bids for the shares on sale in the OFS.

During the offer timings or once the offer gets completed, you can monitor the quantity and price of bids received

You can place only Limit orders under the OFS facility, as Market orders are not allowed. OFS is based on a real-time, system based bidding platform.

The exchange will announce the Indicative Price during the last 60 minutes of the OFS.

Indicative Price is the volume weighted average price of all the valid / confirmed bids. Eg there are total 1000 shares in an offer for sale with Rs. 200 as the floor price. If the investors bid for 200 shares at Rs. 210 and 800 shares at Rs. 200, then the indicative price for the offer would be [(200 * 210) + (800 * 200)] / 1000 = Rs. 202.

7. No risk

You have to deposit 100% of the order value in cash to bid for the shares No leverage is provided to the investors against the stock margin available in the trading accounts

Also, your broker can not utilize for other investment purposes or against any other obligation the funds allocated for OFS

8. No scope for price manipulation or losses

As OFS is based on a real-time, system based bidding platform, there is no scope for price manipulation or losses.

9. Allocation Methodology and Contract Notes

The companies can adopt one of the two methodologies for allocating the shares on offer ie either on a price-priority basis at multiple clearing prices or on a proportionate basis at a single clearing price.

You will get a contract note in the same format when you buy shares in an OFS. Contract note will have the details of your bid price and the quantity allotted in the specified format.

10. No price bands. No confusion

Under IPOs / FPOs, there is a price band in which the investors need to bid for the shares or simply give their consent to buy the shares at the cut-off price.

With OFS, there is only one price, which is the “floor price” As the name suggests, it is the minimum price at which you can bid for the shares under OFS.

11. Choice of good quality companies

Over the last year, many good private as well as PSUs (public sector companies owned by the government of India) have used the OFS method to raise money from investors.

Let's take a look at some of the recent success examples of OFS issues:

1. Steel authority of India (SAIL) in December 2014

They offered a discount of 5% to the floor price and the floor price was Rs 83. Total offer by the Government of India was for 20.65 crore shares of which 10% (2.65 crore shares) was reserved for people like you. This portion was oversubscribed by more than 2.5 times. (Bids were received for more than 6.7 crores shares)

2. Coal India in January 2015.

They offered a discount of 5% to the floor price and the floor price was Rs 358. Total offer by the Government of India was for 31.58 crore shares of which 20% (6.31 crore shares) was reserved for applicants like you. The total issue was oversubscribed by 1.1 times.

3. Rural electrification corporation (REC) in April 2015.

They offered a discount of 5% to the floor price and the floor price was Rs 315. Total offer by the Government of India was for 4.93 crore shares of which 20% (0.98 crore shares) was reserved for people like you. This portion was oversubscribed by more than 9.02 times. (Bids were received for more than 8.83 crores shares)

4. Power finance corporation (PFC) in July 2015.

They offered a discount of 5% to the floor price and the floor price was Rs 254. Total offer by the Government of India was for 6.60 crore shares of which 20% (1.32 crore shares) was reserved for people like you. This portion was oversubscribed by more than 4.49 times. (Bids were received for more than 5.92 crores shares)

5. Indian oil corporation (IOC) in August 2015.

They offered a discount of 5% to the floor price and the floor price was Rs 387. Total offer by the Government of India was for 24.27 crore shares of which 20% (4.85 crore shares) was reserved for applicants like you. Total issue was oversubscribed by more than 1.8 times.

6. Dredging corporation of India in August 2015.

They offered a discount of 5% to the floor price and the floor price was Rs 382. Total offer by the Government of India was for 14 lac shares of which 10% (1.4 lac shares) was reserved for people like you. This portion was oversubscribed by more than 11.65 times. (Bids were received for more than 16.31 lac shares)

Clearly, OFS is like the new T-20 format of cricket matches, which is more popular than the one day cricket matches (ie: the 3-4 days long IPO / FPO)

But what remains to be seen is that investors will take wise decisions to invest whether it is an OFS or an IPO / FPO

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