Offer for Sale

Indian Economy glossary

Also called: OFS · Topic: Financial Markets, Instruments, Insurance and Pensions · NCERT: Beyond NCERT

Meaning

Offer for Sale (OFS) means existing shareholders, such as promoters or the government, sell shares they already hold to the public. The money goes to those sellers, not to the company. It matters for two reasons. It is the main route for disinvestment (the government selling part of its stake in public sector companies). It is also often the "exit" part of an IPO, so an investor must check who actually receives the IPO money.

  • Formula (IPO context): Total IPO size = Fresh issue + OFS portion
  • Money the company gets = Fresh issue only.

Explanation

How it works

  • Existing shares, not new shares. An OFS creates no new shares. It only moves shares that already exist from one owner to another.
  • The seller gets the money.
  • The company's total share capital stays the same.

  • Only ownership changes. The company gets no new money.

  • Primary market means the market where new securities are sold to raise fresh capital for the issuer. An OFS happens during a primary-market event, but it does not raise fresh capital for the company. Exams test this contradiction often.

The two forms of OFS

  • 1. OFS portion inside an IPO
  • An IPO (Initial Public Offering) is a company's first sale of shares to the public. After it, the shares are listed on a stock exchange.
  • Many IPOs have two parts. The fresh issue is new shares, and that money goes to the company. The OFS portion is existing owners (promoters, early investors) selling their shares, and that money goes to them.

  • The rulebook is the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 ("ICDR").

  • 2. OFS through the stock exchange (since 2012)

  • Promoters or the government of an already-listed company sell existing shares through a special exchange window.
  • This is the main route for disinvestment.

Worked example

  • An IPO of ₹1,000 crore is made up of a ₹600 crore fresh issue and a ₹400 crore OFS.
  • The company gets ₹600 crore for new plants, repaying loans and so on.
  • The selling promoters and investors get ₹400 crore.

  • A buyer pays the same price for either kind of share, but the money ends up in different hands.

  • Government disinvestment by exchange OFS: Suppose the government holds 80% of a listed public sector company and sells 5% through the exchange window.

  • The government's stake falls to 75%.
  • The money goes to the government as disinvestment receipts. The company gets nothing.

What makes OFS use rise or fall

  • Market mood: in a strong market, sellers get better prices, so promoters and the government sell more.
  • Disinvestment targets: when the government needs non-tax money, it uses more exchange OFS.
  • Public shareholding rules: a listed company must reach at least 25% public shareholding (MPS). Promoters holding more than 75% can sell through OFS to reach this level.
  • SEBI limits: caps on OFS size (see the SME rules below) restrict how much promoters can sell.

In India

  • Regulator: SEBI. IPO-linked OFS follows the ICDR Regulations, 2018. Exchange-based OFS has been available since 2012.
  • Disinvestment: exchange OFS is the government's main disinvestment route for listed public sector companies. The money is a non-debt capital receipt, meaning the government does not have to repay it.
  • SME IPO rules tightened: the SME IPO boom (196 IPOs raised over ₹6,000 crore in 2023-24) came with misuse, so SEBI brought in limits [2]:
  • OFS capped at 20% of the issue size [2].
  • Each selling shareholder can sell at most 20% of their holding [2].

  • The aim is to stop promoters using the SME route mainly to cash out.

  • Start-up "reverse flipping" (2025-26): start-ups moving their holding company back to India got relief. The one-year pre-IPO holding rule for OFS was eased for shares that came from converting compulsorily convertible securities (instruments that must later turn into shares) [1].

  • Minimum public shareholding (2025-26): SEBI brought in a six-tier structure based on post-issue capital. Very large companies can float smaller IPOs and get longer timelines to reach 25% [1]. OFS is a common way for promoters to reduce their stake over that period.

Don't confuse with

  • Fresh issue: new shares are created and the company gets the money. In an OFS, no new shares are created and the sellers get the money.
  • Follow-on Public Offer (FPO): a listed company issues new shares to the public to raise fresh capital, like the Adani Enterprises FPO withdrawn in 2023. Exchange OFS sells existing shares of a listed company.
  • Rights issue: new shares are offered only to existing shareholders, usually at a discount, and the right can be sold (it is renounceable). The company raises money. OFS is open to the market and raises nothing for the company.
  • Qualified Institutional Placement (QIP, 2006): a listed company issues new shares only to QIBs (qualified institutional buyers: expert institutions such as banks, mutual funds and insurers). The company gets the money.

Prelims Hooks

  • OFS = sale of existing shares by promoters or the government. No new money reaches the company. Only ownership changes.
  • Exchange OFS since 2012 is the main route for disinvestment of listed public sector companies.
  • In an IPO, fresh issue money goes to the company and OFS money goes to the selling shareholders. Many IPOs mix both.
  • Trap: "An IPO always raises fresh capital for the company." This is wrong if the IPO is wholly or partly an OFS.
  • SME IPOs: OFS capped at 20% of the issue size, and each seller can sell at most 20% of their holding [2].
  • Reverse flipping (2025-26): the one-year pre-IPO holding rule for OFS was eased for shares from converted compulsorily convertible securities [1].

Mains Points

  • Disinvestment and fiscal policy. Exchange OFS lets the government raise non-debt receipts quickly and openly through market price discovery.
  • Selling a stake → more non-tax money → less borrowing needed to fund the fiscal deficit.

  • Trade-offs: selling in a weak market means a low price. Small stake sales keep government control, so efficiency gains from new owners may not follow. The money is one-time, not recurring.

  • Promoter exit vs capital for growth. IPOs that are mostly OFS move household savings to existing owners, not into new factories or projects.

  • SEBI's SME rules (20% OFS cap, 20% per-seller limit, 5-year promoter lock-in) push issues back towards raising real capital [2].

  • Trade-off: early investors such as venture capital funds need a way to exit. Tight OFS limits can make it harder to fund start-ups.

  • Deeper markets and wider ownership. OFS helps companies reach 25% minimum public shareholding. This spreads ownership, improves liquidity (how easily shares can be bought and sold) and reduces promoter dominance. The 2025-26 six-tier MPS structure balances this against flooding the market with large share sales [1].

Related concepts

Read more

Sources

  1. 1SEBI Annual Report 2025-26, Chapter 3: Primary Marketssebi.gov.in · tier 1
  2. 2SEBI Board memorandum: Review of SME framework under SEBI (ICDR) Regulations, 2018 and LODR applicabilitysebi.gov.in · tier 1