InvestorQ : What is the difference between initial public offering (IPO) and offer for sale (OFS)?
Ira Shah made post

What is the difference between initial public offering (IPO) and offer for sale (OFS)?

Answer
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Tanya Mehta answered.
1 year ago


Initial Public Offering (IPO) is the first time when a company floats its shares to public to raise funds by listing the company on stock exchange and also increases the potential audience to your stock. It also gives a good benchmark for valuation of your stock. Prior to an IPO, a company is considered to be private – with a smaller number of shareholders. However, when an already listed company tries to raise fresh funds from public then it is referred as Follow-on Public Offer (FPO).

In case of an Offer for Sale (OFS), the public issue is planned to give an exit to the existing shareholders. So the current promoter’s can dilute their stake by selling them to Public by exchange only. There are 3 such instances here. Firstly, we have the disinvestment process wherein the government hives off a part of its stake to public shareholders to raise funds to finance its plans. Secondly, many companies place shares with marquee anchor investors like PE Funds and VCs and a public issue is used to give an exit route to them. Thirdly, many promoters may themselves be looking to monetize a part of their stake and that may also result in an OFS.The difference between Initial Public Offering (IPO) and Offer For Sale (OFS) is given below:


 

IPO

OFS

1.

Unlisted company list themself to stock exchange

Company already listed with stock exchange can opt for OFS

2.

Company offers share to the public for the first time

Shares of already listed company is offered to the public

3.

Company sells new or existing securities

Promoters of listed companies dilute stake and no new shares are created.

4.

Company should fulfill SEBI Eligibility  criteria

Only Top 200 Companies with respect to market capitalisation are eligible to use OFS facility.


5.

Process involved to raise funds is lengthy

Process is as small that an OFS can be completed in one trading session

6.

No fee is required to pay by the investors 

Investors are required to pay charges like brokerage, securities transaction tax and other charges required to buy shares in the cash market.