FPO: Follow on Public Offer is a process wherein a company that is already listed on a stock exchange, issues new shares to existing investors or shareholders. It is also known as a secondary offering. In other words, FPO allows a company to raise additional funds through the issuance of new shares. 

COMMERCIAL BREAK
SCROLL TO CONTINUE READING

FPOs are basically used by companies to diversify their equity base and raise capital for business. This capital can be used for multiple purposes such as to meet the company's expenses, business expansion, debt reduction and more.

FPO vs IPO

FPO is different from Initial Public Offer (IPO). IPO is the first sale of shares to the public while FPO is Follow on Public Offer. FPO typically occurs after the company has completed an IPO.

FPO also allows investors to increase their stake in a company. It also provides an opportunity to new investors to buy stakes in a company.

Click Here For Latest Updates On Stock Market | Zee Business Live

Types of FPO

A company may conduct FPO in two ways-

Dilutive FPO

Dilutive FPO is when a company issues additional shares and offers them to the public. In simpler words, it is when the board issues a new set of shares and increases the number of outstanding shares of the company. In such cases, as the share count increases, the earnings per share (EPS) decreases.

Funds raised from such an FPO by the company are allocated for expansion activities or to pay for debts.

Non-dilutive FPO

Non-dilutive FPO shareholding is when shares are issued to the public which are already in existence. In simpler words, it is when existing shareholders, for instance- directors or founders, sell their shares and offer them to the public. This type is usually used to change the shareholding ownership.

At-the-market offering

It is a type of follow-on offering of stock in which a company offers secondary public shares on any given day to raise capital, mostly depending on the prevailing market price.

Why will a company need an FPO?

FPO allows companies to raise ‘additional capital’ for multiple reasons, for instance, to raise money, pay off debt or to expand. 

Dilutive FPO helps in achieving this goal where new shares are offered and new money is generated. It can also be used to improve the company's growth by financing new projects.

What happens in an FPO?

The FPO issue price is usually lower than the prevailing market price to attract more subscribers to invest in FPO. Lower demand for the listed shares eventually does bring down the market price and levels it to the FPO issue price.

Also, read- Adani Group's 413-page response 'largely confirmed findings, ignored key questions': Hindenburg