Fresh Issue vs Offer for Sale (OFS) in an IPO

Every IPO page describes the issue as a fresh issue, an offer for sale (OFS), or a mix of the two. The difference decides who receives the money you pay — the company, or its existing shareholders — and it is one of the first things worth checking in an offer document.

Fresh issue

In a fresh issue the company creates new shares and sells them. The money raised (after issue expenses) goes to the company, to be used for the purposes stated in the offer document's Objects of the Issue section — for example capital expenditure, repaying borrowings, funding working capital or acquisitions.

• The total number of shares increases, so existing shareholders' percentage ownership is diluted.
• Earnings per share (EPS) after the issue is spread over more shares.
• The company has to report how it uses the money, and large issues have a monitoring agency that reports on utilisation.

Offer for sale (OFS)

In an offer for sale, existing shareholders sell some of their shares to the public. No new shares are created. The selling shareholders — promoters, private-equity funds, early investors — receive the proceeds, and the company gets nothing from this part of the issue.

• The number of shares does not change, so there is no dilution.
• It gives existing investors an exit or partial exit.
• The offer document names each selling shareholder and how many shares each is selling, along with their average cost of acquisition.

Note that this is different from the OFS through the stock exchange mechanism that already-listed companies' promoters use to sell shares. In an IPO, “OFS” simply means the secondary-sale portion of the issue.

Mixed issues

Many Indian IPOs combine both. For example, an issue of ₹1,000 crore might be ₹400 crore fresh issue and ₹600 crore OFS. Only the ₹400 crore goes to the company. On our IPO pages this shows as “Fresh capital cum OFS”; the RHP gives the exact split.

Why the split matters

An issue that is largely OFS is not automatically a bad sign — early investors in any company eventually sell — but it does mean the IPO is mainly a transfer of ownership rather than a way of funding growth. Reading who is selling, how much of their stake, and at what cost, gives useful context. See how to compare IPOs objectively.

Promoter lock-in

After an IPO, SEBI requires a minimum promoter holding to be locked in, so promoters cannot sell it for a set period; holdings above that minimum have a shorter lock-in. Anchor investors' shares are also locked in for 30 and 90 days. Lock-in expiries are disclosed and are sometimes followed by selling. The Capital Structure section of the RHP lists what is locked in and until when.

Related: DRHP vs RHP · How to read IPO financials