Fresh Issue vs Offer for Sale: Key Differences

When a company raises funds through an IPO, it can do so via a fresh issue, an offer for sale (OFS), or a combination of both. While both involve selling shares to the public, their purpose, impact, and flow of funds differ significantly. Understanding the difference between a fresh issue and an offer for sale helps investors evaluate how an IPO affects the company and existing shareholders.

A fresh issue refers to the issuance of new shares by a company to the public. These shares are created specifically for the IPO and did not exist earlier. When investors subscribe to a fresh issue, the money raised goes directly to the company. The primary objective of a fresh issue is to raise capital for business needs such as expansion, debt repayment, working capital requirements, or funding new projects.

In a fresh issue, the company’s total number of outstanding shares increases, which results in dilution of existing shareholding. However, this dilution is often balanced by the benefit of additional capital entering the business, potentially supporting long-term growth.

An offer for sale is a process where existing shareholders—such as promoters, private equity investors, or early stakeholders—sell their shares to the public. In this case, no new shares are issued. Instead, ownership is transferred from existing shareholders to new investors. The company itself does not receive any funds from an OFS.

OFS is commonly used by promoters to reduce their stake, meet regulatory requirements, or provide an exit to early investors. Since no new shares are created, the company’s total share capital remains unchanged, and there is no dilution due to share creation.

A fresh issue allows a company to raise new capital by issuing additional shares to the public. The process typically involves:

• Determining Share Quantity and Price Band: The company decides the number of new shares and sets a price range for investors.
  

• Investor Application: Interested investors submit bids during the IPO subscription period.
  

• Allotment and Demat Credit: Once the shares are allotted, they are credited to the investors’ demat accounts.
  

• Fund Transfer to Company: The money collected from investors is transferred directly to the company, which uses it for purposes outlined in the prospectus, such as expansion, debt repayment, or capital expenditure.

An Offer for Sale enables existing shareholders to sell their shares to the public without diluting the company’s capital. The procedure typically includes:

• Shareholder Decision: Existing shareholders, such as promoters or early investors, decide the number of shares they want to sell.
  

• Investor Bidding: Investors submit bids during the OFS window for the available shares.
  

• Allotment and Transfer: Allotted shares are transferred from the selling shareholders’ demat accounts to the buyers.
  

• Proceeds to Sellers: The funds generated from the sale go directly to the selling shareholders, not the company, allowing partial exit without new capital infusion.

Fresh issues allow companies to raise additional capital for strategic purposes.

• Capital for Expansion: Provides funds for business growth and new projects.
  

• Debt Reduction: Helps improve the balance sheet by lowering debt levels.
  

• Support for Long-Term Plans: Facilitates sustainable business and expansion strategies.
  

• Valuation Enhancement: Infusion of capital can positively impact company valuation.
  

Offer for Sale enables existing shareholders to sell part of their holdings in a structured manner.

• Promoter or Investor Exit: Allows partial exit without affecting company operations.
  

• Public Shareholding Compliance: Helps meet regulatory requirements for minimum public shareholding.
  

• No Dilution: Does not increase the total number of shares; existing ownership remains intact.
  

• Price Discovery: Facilitates market-based valuation for existing shares.

From an investor’s perspective, a fresh issue indicates that the company is raising funds to support growth or strengthen operations. The use of proceeds is disclosed in the offer documents and outlines how the funds are intended to be utilised. However, dilution must be considered.

In contrast, an OFS signals a change in ownership rather than capital raising. While it does not dilute share capital, investors often assess why promoters or investors are selling and whether it affects long-term confidence in the business.

A fresh issue raises new capital for the company, while an offer for sale allows existing shareholders to sell their stake. Fresh issues increase share capital and may dilute ownership, whereas OFS does not. Most IPOs combine both to balance growth funding and investor exits. Understanding this distinction helps investors make informed IPO decisions.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.