Fresh issue vs OFS: where do IPO proceeds go?
The same application can fund the company, pay selling shareholders, or do both. The offer structure tells you which.
Fresh issueNewly issued sharesCompanyUse of proceeds in the offer document
Offer for saleExisting sharesSelling shareholdersCompany receives no OFS proceeds
Compare the two components
| Question | Fresh issue | Offer for sale |
|---|---|---|
| Who issues or sells the shares? | The company issues new shares. | Existing holders sell their shares. |
| Who receives proceeds? | The company, subject to issue expenses. | The selling shareholders, subject to applicable expenses. |
| What should you read? | Objects of the offer, costs and expected allocation. | Selling shareholder details and holdings before and after the offer. |
A worked example
Illustration, not an actual IPO: a ₹1,000 crore offer with ₹600 crore of fresh issue and ₹400 crore of OFS has a 60% fresh component and a 40% OFS component. The ₹1,000 crore headline is not the amount available to the company for expansion.
What to check before comparing offers
- Use the same offer document and stage for the total, fresh issue and OFS.
- Check the currency unit. Crore, lakh, million and shares are not interchangeable.
- Read whether the amounts are gross proceeds, net proceeds or “up to” limits.
- Inspect allocations to debt repayment, capital expenditure, acquisitions and general corporate purposes.
- Compare dilution and selling holders’ remaining ownership.
A high OFS proportion alone does not prove an IPO is poor. A fresh issue alone does not prove proceeds will earn attractive returns. Investigate the disclosed use and the business.
Review an IPO’s offer structureCheck the original sources
- SEBI public issue filings — find the issuer’s offer document and any later updates.
- NSE IPO market information — check exchange notices and issue information.
- BSE public issue information — verify the relevant exchange’s current issue terms.