Initial Public Offer

An IPO is when a company which is presently

not listed at any stock exchange makes either
a fresh issue of shares or makes an offer for
sale of its existing shares or both for the first
time to the public. Through a public offering
the issuer makes an offer for new investors to
enter its shareholding family.
Thus IPO is considered an important milestone
in a companys lifecycle making its transition
from a closely held company to listed entity.
IPO can be done either through a fresh issue
of shares by the company or through an offer
for sale of existing shares to investors.
In the case of fresh issue, fresh capital is
injected into the company and its equity base
expands.
In the offer for sale there is no infusion of
capital in the company because proceeds of
the issue go to the shareholders who offer
their shares for sale.
In 2010, SEBI prescribed a minimum threshold
level of public holding to be 25% for all listed
companies.
Why does a company make an IPO
It provides the companies to raise cash for
setting up a project or for
diversification/expansion or sometimes for
working capital or even to retire debt or for
potential acquisitions. In this the proceeds go
to the company.
Companies also go public to provide a route
for some of the existing shareholders
including venture capitalists to exit fully or
partially from the companys shareholding or
for promoters to partially dilute their holdings.
This called an offer for sale.
An offer for sale is open for only a single
trading day. The company shares are sold in a
single trading day and only during the normal
trading hours
An offer for sale (OFS) is the way by which
stakeholders of a company sell their holding.
OFS enables promoters to dilute their holdings
in listed companies in a transparent manner
with a wider participation through exchange
based bidding platform.

Capital market regulator SEBI (Securities and
Exchange Board of India) in July 2012 allowed
stock exchanges to set up a separate window
OFS wherein promoters can sell their
shares in listed companies.

The OFS window has been created to give
promoters an easy option to comply with the
minimum public shareholding requirement.
The OFS route helps the promoters of an
already listed company to sell their existing
shareholdings through an exchange-based
bidding platform.
Who are the participants -

The promoters of the company are sellers in
the OFS process. They can only sell the shares
and not buy them. The buyers include foreign
institutional investors (FIIs), mutual funds,
insurance companies, individuals and HUFs
(Hindu Undivided Families) among others.

The shares are made available to the investors
at the price determined by the promoters of
the company in consultation with its
investment bankers.
The successful completion of an IPO leads to
the listing and trading of the companys shares
at the designated stock exchanges