What Is FPO: In the world of finance and investing, various methods allow companies to raise capital and expand their operations. One such method is a Follow-on Public Offering (FPO).
In this article, we will delve into the concept of FPO and explore its significance in the corporate landscape. We will discuss its definition, purpose, benefits, process, and key features.
Additionally, we will highlight the differences between FPO and IPO and provide examples of successful FPOs. So, let’s dive in and gain a comprehensive understanding of FPO.
What Is FPO?
An FPO, also known as a secondary offering or seasoned equity offering (SEO), refers to a process in which a publicly listed company issues additional shares to the public. Unlike an IPO, where a company goes public for the first time, an FPO occurs after the initial public listing.
It enables companies to raise capital by selling more shares to investors, increasing their equity base.
Purpose Of FPO
The primary purpose of an FPO is to raise funds for a variety of reasons. Companies may opt for an FPO to finance business expansion, repay debts, fund research and development, acquire assets or other companies, or simply increase their cash reserves.
By issuing additional shares, companies can tap into the liquidity of the share market and raise capital from interested investors.
Difference between IPO And FPO
FPOs and IPOs both involve the issuance of shares in order to raise capital, but there are some significant differences between the two:
Timing
IPOs occur when a company goes public for the first time, while FPOs take place after a company is already publicly listed.
Purpose
IPOs primarily aim to raise capital for the company’s growth and expansion, while FPOs often serve the purpose of raising additional funds for existing shareholders or the company itself.
Regulatory Requirements
IPOs involve more stringent regulatory requirements and scrutiny since they mark a company’s initial entry into the public market. FPOs still require compliance with regulations but may have a smoother process due to the company’s existing public status.
Investor Base
IPOs attract new investors to the company, expanding its shareholder base. FPOs generally involve existing shareholders selling their shares to the public, which may result in a more limited expansion of the shareholder base.
Types Of FPO
There are 5 different types of FPO:
Dilutive FPO
A dilutive FPO involves a company issuing additional shares to the public, which consequently reduces the ownership stakes of existing shareholders. Dilutive FPOs are primarily conducted to raise capital for purposes like expansion, debt repayment, or funding acquisitions.
Non-dilutive FPO
In a non-dilutive FPO, a company offers its existing shares to the public without issuing new shares. This type of FPO typically enables existing shareholders, such as founders, early investors, or employees, to sell their holdings to the public. The company itself does not receive any proceeds from this offering.
Rights Issue
A rights issue is a specific type of FPO where existing shareholders are granted the right to purchase additional shares at a discounted price. The aim of a rights issue is to raise capital from current shareholders, allowing them to maintain their proportional ownership in the company.
Secondary Offering
A secondary offering occurs when existing shareholders, such as institutional investors or large stakeholders, sell their shares to the public. In this type of FPO, the proceeds from the sale go to the selling shareholders rather than the company.
Seasoned Equity Offering
A seasoned equity offering involves a publicly traded company issuing additional shares to the public. Established companies often pursue this type of offering to raise capital for purposes such as acquisitions, debt reduction, or business expansion.
Benefits Of FPO
There are several benefits associated with conducting an FPO:
Capital Infusion
FPOs provide companies with an opportunity to raise significant amounts of capital, enabling them to fuel growth and pursue strategic initiatives.
Enhanced Market Visibility
FPOs attract attention from investors, analysts, and the media, thereby increasing a company’s market visibility and potentially improving its reputation.
Increased Liquidity
By increasing the number of shares available for trading, FPOs enhance liquidity in the company’s stock, making it more attractive to investors.
FPOs can lead to a broader distribution of ownership among shareholders, reducing the concentration of control in the hands of a few individuals.
How To Apply For FPO
The method for applying for an FPO is the same as for applying for an IPO. To engage in FPOs, you must have a De-mat account, a trading account, and a bank account as a retail investor over the age of 18 with a valid PAN. To buy FPO shares, you typically need to follow these steps:
- Open a brokerage account with a registered stockbroker.
- Monitor the announcements and details of the FPO.
- Place an order for the desired number of FPO shares through your broker during the subscription period.
- Make the necessary payment as per the FPO terms.
Last Words
In conclusion, an FPO is a strategic method for publicly listed companies to raise additional capital by issuing new shares to the public. It offers numerous benefits, including capital infusion, enhanced market visibility, increased liquidity, and diversification of the shareholder base.
However, companies considering an FPO must carefully evaluate their financial readiness, market conditions, and regulatory compliance. They should engage experienced professionals and communicate effectively with potential investors.
While FPOs carry risks such as market volatility, share dilution, and regulatory considerations, successful examples demonstrate how companies have leveraged FPOs to fuel growth, fund acquisitions, and pursue strategic initiatives.
FAQ
Q.1 What is meant by FPO in the share market?
A.1 FPO stands for Follow-on Public Offering in the share market. It refers to the process when a publicly traded company offers additional shares to the public after its initial public offering (IPO). This allows the company to raise additional capital by issuing new shares to investors.
Q.2 FPO Full Form
A.2 Full Form Of FPO in share market : Follow-on Public Offering
Q.3 what is an IPO?
A.3 IPO stands for Initial Public Offering. It is the process in which a privately held company offers its shares to the public for the first time. It allows the company to raise capital by selling a portion of its ownership to investors through shares traded on a stock exchange.
Q.4 Can FPO shares be sold?
A.4 Yes, FPO shares can be sold by the investors who have acquired them. Once the FPO shares are listed and traded on a stock exchange, investors have the option to sell their shares in the secondary market, just like any other publicly traded shares.