After the IPO is listed on the exchange and is traded in the secondary market, promoters of the company might still want additional capital. There are three options available: Rights Issue, Offer for Sale and Follow-on Public Offer. (View Highlight)
Rights Issue
The promoters can choose to raise additional capital from its existing shareholders by offering them new shares at a discounted price (generally lower than Market Price) (View Highlight)
Although this option looks good, it limits the company to raise the capital from a small number of investors who are already holding shares of the company and might not want to invest more (View Highlight)
A rights issue leads to the creation of new shares that are offered to the shareholders, which dilutes the value of the previously held shares. (View Highlight)
OFS
The promoters can choose to offer the secondary issue of shares to the whole market, unlike a rights issue restricted to existing shareholders. The Exchange provides a separate window through the stockbrokers for the Offer for Sale. (View Highlight)
The exchange allows a company to route funds through OFS only if the Promoters want to sell out their holdings and/or maintain minimum public shareholding requirements (Govt. PSU have a public shareholding requirement of 25%). (View Highlight)
There is a floor price set by the company, at or above which both Retail and Non-Retail investors can make bids. The shares are allotted, if bids are at a cut-off price or above will be settled by the exchange into the investor Demat account in T+1 days. (View Highlight)
