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Difference between fpo and ofs

HARIKRISHNAN T (Others) (37 Points)

10 January 2015

hi,

Can anyone explain the differences between Offer For Sale and Follow On Public Offer.

Regards,

Hari

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2 Replies

Arpit Shah (Accountant) (21438 Points)
Replied 10 January 2015

Follow On Public Offer - FPO

AAA |

DEFINITION OF 'FOLLOW ON PUBLIC OFFER - FPO'

An issuing of shares to investors by a public company that is already listed on an exchange. An FPO is essentially a stock issue of supplementary shares made by a company that is already publicly listed and has gone through the IPO process.

INVESTOPEDIA EXPLAINS 'FOLLOW ON PUBLIC OFFER - FPO'

FPOs are popular methods for companies to raise additional equity capital in the capital markets through a stock issue. Public companies can also take advantage of an FPO issuing an offer for sale to investors, which is made through an offer document. FPOs should not be confused with IPOs, as IPOs are the initial public offering of equity to the public while FPOs are supplemantary issues made after a company has been established on an exchange.

Offers for Sale (OFS) FAQs

QWhat do you mean by OFS?

A
OFS stands for Offer for Sale & serves the same purpose as traditional mechanism of Follow-On Public Offer (FPOs). OFS enables promoters to dilute their holdings in listed companies in a transparent manner with a wider participation through exchange based bidding platform.
QHow much can an investor invest in one company's OFS under Retail category?

A
At the time of bidding, an investor can invest up to Rs. 2 lakhs under retail category in one company's OFS.
QIn which category can I bid?

A
Individual retail investors shall have the option to bid in the Retail Category (RI) and the general category i.e. non institutional investor (NII). However, if the cumulative bid value of such investors exceeds Rs. 2 Lakhs, the bids in the retail category shall become ineligible.
QIs the cut off price for retail & NII categories different?

A
The cut off price shall be determined separately for bids received in the retail category and for bids received in the non-retail category.
QIf an investor buys shares through an OFS, does he get a discount?

A
Retail investors may be offered a discount on the floor price, especially in OFS of PSU companies. The discounted price is one of the key reasons to buy shares during an offer for sale and not from the secondary market. You can read the OFS prospectus for details of discount in specific OFS.
QHow much of the entire issue is reserved for retail investors?

A
According to SEBI guidelines, a minimum of 10% of the offer is reserved for the retail category. PSUs may offer up to 20% reservation for retail investors.
QHow can I invest/participate in OFS?

A
You would need a trading and demat account to invest in OFS. You can invest/participate in OFS with the help of your Kotak Securities trading account. Online customers can login their trading account & place bids under "IPO>OFS" section of our website. Offline customers can place their bids with the help of their assigned dealer. Please note that under OFS no forms are issued to apply for bids like IPOs/FPOs.
QUnder OFS, which party can be defined as seller & buyers?

A
Under OFS, promoters of the company who wish to dilute/offload/sell their holdings are the sellers & the broad market participants namely individuals, Corporates, QIBs, HUF, FIIs represent the buyers.
QCan I also trade under normal Equity segment in stocks which are eligible for Offer for Sale?

A
Yes, you can continue trading under normal Equity segment for stocks available under Offer for sale on the day of such an offer.
QCan I place Market and Limit orders under this facility of Offer for Sale?

A
You can place only a Limit order under Offer for Sale facility as market orders are not allowed.
QWhere can I view the details of the company coming up with OFS?
QWhat do you mean by floor price under OFS? Is it mandatory for the issuer to disclose the floor price?
QWhat is the advantage of OFS over traditional Follow-On Public Offer?
A
Below are the advantages of OFS over FPOs:
- Involves least amount of paper work since it is a system based bidding platform
- Less time consuming due to automation & process involved
- Minimum spread between application & allotment of shares
- Cost-effective
- Convenient
QWhat are the charges applicable to me under OFS?

A
There are no additional charges to place your bids under OFS. Transaction charges, STT & other charges which are currently levied under equity segment would be applicable for OFS segment.
QHow will the shares be allocated under OFS & by when will I receive allotment?

A
Investors shall receive shares directly into their DEMAT account on allotment on T+2, where T is the day of issue.
QIn case of non-allotment, by when will I receive my funds?

A
Funds collected from the bidders who have not been allocated shares shall be released on T+1, where T is the day of issue.
QSince I can invest in OFS through my existing trading account, can I place my bids under OFS against stock margin available in my trading account?

A
You cannot place your bids under OFS against stock margin available in your trading account. Every bid/order should be backed by 100% cash margin. The funds allocated for OFS shall not be utilized against any other obligation of the trading member or co-mingled with other segments.
QWhat is the period of issue under OFS & duration during which I can place my bids?

A
The issue period under OFS shall not exceed one trading day. You can place your bids as per the timelines defined by your broker.
QCan I modify/cancel my order under OFS?

A
Yes, you can modify/cancel your bids during the offer period. However, no modification or cancellation will be allowed during the last 30 minutes of the offer duration.
QCan I buy and sell shares through offer for sale facility?

A
Only BUY bids of eligible stock is allowed under Offer for Sale facility.
QWhat will happen to the issue under OFS in case of market closure due to the incidence of breach of 'market wide index based circuit filter'?

A
In case of market closure due to the incidence of breach of 'market wide index based circuit filter', the offer for Sale will be halted like regular trading. Further, if OFS market closes during cooling period there will not be any extension of the issue period under OFS.
QIs there any restriction on number of bids from single buyer?

A
Under OFS, there is no restriction on number of bids from single buyer.

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Raghuram Rajan (MBA) (21 Points)
Replied 20 April 2015

Follow-on Public Offering:

An offering of additional shares after a company has had an initial public offering.

This sometimes means the company is strapped for cash. So they need to issue more shares to pay bills or finance a new project.

An Offer For sale (OFS) is the sale of stock by a private company to the public. Offer For sale (OFS) are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded.

In an OFS, the issuer lots of obtain the assistance of an underwriting firm, which helps it determine what type of security to issue (preferred or common), excellent offering price and time to bring it to market.

Also referred to as a "public offering".

Public Offering can be a risky investment. For the individual investor, it is very hard to predict what the stock will do on its first day of trading and in the near future since there is often little historical data with which to analyze the company. Also, most POs are of companies going through a transitory growth period, and they are therefore subject to additional uncertainty regarding their future value.

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