FPO : Types of FPO, Full Form, Recent FPO Listings

When reading about businesses trying to raise money for operations or expansion, you may have come across the words "IPO" or "FPO." However, since there are fewer FPOs than IPOs, Initial Public Offering (IPO) is more widely heard than Follow-on Public Offering (FPO).

What exactly is FPO?

An FPO is a stock market mechanism for issuing shares to customers. It's a way for a corporation to raise new equity funds to help them manage their operations or carry out their growth plans. The FPO concept is that any public offering made after the IPO qualifies as an FPO.

In simple Words FPO abbreviated as Follow-on Public Offer is a process in which an existing company listed on the stock exchange issue new shares to the existing shareholders or to the new investors.

Definition of FPO:

Definition: FPO (Follow on Public Offer) is a process by which a company, which is already listed on an exchange, issues new shares to the investors or the existing shareholders, usually the promoters. FPO is used by companies to diversify their equity base.

Description: A company uses FPO after it has gone through the process of an IPO and decides to make more of its shares available to the public or to raise capital to expand or pay off debt.

What is the difference between an IPO and an FPO?

IPO stands for Initial Public Offering, a process in which a private company goes public by issuing shares to the general public for the first time.

In an IPO, the corporation is not trading publicly until it goes public. As a result, it is a reasonably high-risk venture since the new investor will not be familiar with the company's track record.

Also Read : 8 Recent IPO Stocks Defying Broader Market Trend

This is a relatively high investment since the investor does not have the opportunity to track the previous stats or records of the particular company to analyze before investing.

An FPO, on the other hand, is only available if the firm is still publicly traded. It helps investors observe industry dynamics and track their future investments for some time before deciding.

It is different from an IPO where the company issue its shares to its public for the first time to collect funds in order to grow their business.

The reason behind the company performing an FPO is to expand its equity base. The company uses FPO only after the company has started the process of an IPO to make their shares available to the public and to raise capital for their business.

Though private businesses use IPOs to finance investment, government agencies often use FPOs to offset deficits, losses or to minimize their interest in the business.

What are the types of IPOs and FPOs?

There are two types of IPOs:

Offers with a set price

The original business shares are offered at a set price in a fixed price sale, as the name implies. The corporation sets the price, and buyers are informed of the equity values before the company's initial public Offering.

Book Publishing Services:

A bidding process is used in the book-building Offering. The price of a share is not set in stone. It is negotiated by a bidding procedure, with the final cost determined after the bidding is completed. The purchaser must state how many shares they want and how much they are willing to pay for them.

FPOs classified into two categories:

Dilutive Offering:

A dilutive FPO occurs when a corporation tries to raise more money by releasing more shares it's done to pay off loans. In the case of a dilutive FPO, however, a company's valuation remains unchanged, resulting in a reduction in the company's per-share earnings.

Non-dilutive Offering:

In this situation, the company's owners or significant shareholders sell part of their stock to the general public. The money goes to the person who is selling the bonds, not the company. As a result, the company's earnings per share were unchanged.

Investing in initial public offerings (IPOs) and initial public offerings (FPOs) carries various risks. Though IPOs have a high level of risk, they may also yield higher income. FPOs, on the other hand, are more credible since the firm is listed and there is more detail available about the stock market path.

It can be difficult to fully comprehend the complexities of each form of investment, including its benefits, drawbacks, and limitations. If you want to invest in an FPO but aren't sure how to go about it, you should hire an investment broker to help you. Get in contact with one right away to begin planning for your financial future!

The FPO is raise basically for two major purposes:

1) To reduce the debt which is existing in a company

2) To raise additional capital for a company

Company Need an FPO:

A company needs a Follow-on Public Offer to raise additional capital for several major reasons, and it is fulfilled by conducting a dilutive FPO where new shares are offered. A large amount of money is generated.

What Happens in an FPO

The share price issued in an FPO is lower than the prevailing market price. The primary motive behind issuing shares at a lower price is attracting and getting more subscribers to its issue.

Subscribe For an FPO:

FPO is generally considered an advantage compared to IPOS because investors get an idea about the company's management, business practices, and potential growth.

The company listed on the stock exchange is not new, and investors will get the historical reference for its earnings report, the performance of the stock market, and much data to bank on.

FPO tend to have less risk than IPO because the price fixed for an IPO is lower than the market price to attract shareholders to invest more in FPO.

Several shareholders engage in the FPO to buy shares at a discounted market price and sell them in the market to gain a premium on their transaction.

A lot of research is required in FPO to know about the company and its past performance, but the degree of homework in FPO is a lot easier.

Also Read : Market Regulator SEBI’s new IPO norms: IPO rules for new age companies

Hence it goes well for risky investors and gives them an opportunity to access shares of a company at a discounted price.

Recent FPO listings:

Following are the recent FPO filings

Ruchi Soya Industries Limited:

Ruchi Soya Industries Limited filed its draft prospectus for FPO with the Securities and Exchange Board of India (SEBI) in June 2021.

Yes Bank Limited:

After Rana Kapoor’s malpractices regarding hiding major corporate governance lapses at Yes Bank Limited and showing bad loans as good ones came into light, Yes Bank shares tanked with a blink of an eye in March 2020. Subsequently, the bank had to be bailed out by the State Bank of India to provide financial support.

Later, in order to augment its equity, share capital, Yes Bank Limited had to come up with a follow-on public offer. Still, the bank’s condition is not that good but has improved considerably since the fraud came into light.