OFS, which stands for “Offer for Sale,” is a way for existing shareholders, often called “promoters,” to sell a portion of their stake in a listed company to the public.
Suppose Mr. Sharma, a major shareholder in Zomato Ltd., decides to reduce his stake by 5%. Instead of selling these shares in the open market, he opts for OFS, allowing retail and institutional investors to purchase these shares at a predetermined price, ensuring a more organized and transparent sale.
An Initial Public Offering (IPO) is when a private company offers its shares to the public for the first time, usually to raise capital for expansion or other business activities.
Let’s understand this with an example from Mama Earth. Initially, the founders of Mama Earth owned 100% of the shares. They’re the sole bosses. But they want to grow the business and need extra cash for that. So, they decided to sell some of their shares to the public through an IPO. After the IPO, they still own many shares, but not all. Let’s say they now own 70% of the shares, and the public owns the other 30%.
When MamaEarth goes public, ownership gets diluted. It’s not just the founders’ share anymore; it’s shared with whoever buys the shares. So, the founders’ ownership percentage decreases, but ideally, the company’s value increases because of the capital influx.
The main difference between an IPO and an OFS is that an IPO deals with new shares or the company’s first appearance on the stock market, while an OFS is when the promoters sell existing shares.
| Basis of Differences | IPO | OFS |
| Nature | In an IPO, fresh shares are introduced, allowing new investors to participate in ownership. | In OFS, existing shares are sold by major shareholders, making it a resale rather than an issuance. |
| Purpose | IPO aims to raise capital for growth, expansion, or debt repayment for the company. | OFS allows existing shareholders to offload their stake, thereby monetizing their investment. |
| Pricing | IPO pricing is determined through a book-building process, taking bids from various investors. | OFS is usually priced at a discount to the current market price to attract buyers more quickly. |
| Share Dilution | In an IPO, new shares alter existing ownership percentages, leading to dilution. | OFS involves selling existing shares; thus, there is no dilution of ownership. |
| Regulatory Process | IPO requires rigorous scrutiny by SEBI and involves several legal and financial disclosures. | OFS follows a simplified process compared to IPO, with less regulatory oversight. |
| Investor Accessibility | IPO is open to all types of investors, allowing more extensive participation. | OFS is often restricted to specific groups, such as institutional investors. |
| Impact on Company’s Financial Structure | IPO can transform the company’s structure, changing the debt-to-equity ratio with new equity. | OFS has no direct impact on the company’s financial structure; it’s merely a transfer of ownership. |
| Time Frame | IPOs often take longer to prepare and execute, given the detailed requirements. | OFS can be completed relatively quickly, as it is more streamlined and requires fewer formalities. |
| Effect on Market Liquidity | IPOs may enhance market liquidity by introducing fresh shares to the public market. | OFS may or may not have a significant impact on market liquidity, depending on the size of the sale. |
We hope that you are clear about the topic. But there is more to learn and explore when it comes to the stock market, commodity and hence we bring you the important topics and areas that you should know:
The key difference between OFS and IPO is that OFS involves selling already listed shares by major shareholders, while IPO introduces new company shares to the market.
The primary difference between FPO and OFS is that FPO (Follow-on Public Offer) is a fresh issue of shares or bonds to the public by an already listed company, whereas OFS involves selling already listed shares by existing shareholders.
OFS is used by existing shareholders, usually promoters, to offload a portion of their stake in a listed company.
As of August 2023, India’s largest FPO is Adani Enterprises’ Rs 20,000 crore follow-on public offer (FPO). This dwarfs the previous record set by Yes Bank’s Rs 15,000-crore FPO in July 2020.
No, buying an IPO isn’t always profitable. Success depends on company fundamentals, market conditions, and pricing.
In 2022, the average return on an IPO is 50%. This means that investors who bought shares in initial public offerings (IPOs) in 2022 have made an average of 50% of their money. But it is important to remember that this is just an average, and there are many different ways to make money. Some IPOs did really well, while others did not do as well.
To understand the topic and get more information, please read the related stock market articles below.
Vinayak is a passionate financial markets enthusiast with 4+ years of experience. He has curated over 100 articles simplifying complex financial concepts. He has a unique ability to break down financial jargon into digestible chunks. Vinayak aims to empower newbies with relatable, easy-to-understand content. His ultimate goal is to provide content that resonates with their needs and aspirations.
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