What Is Follow-on Public Offering (FPO)?
A Follow-on Public Offering, or FPO, is a process by which a listed company raises capital by issuing additional securities to investors for expansion or debt repayment. In an FPO, the securities are being offered to the public for the second time after the company's IPO.
How Follow-on Public Offers (FPOs) Work?
- Company Choice & Authorization: A listed company can choose to release extra shares and obtain approval from control bodies such as SEBI.
- Pricing & Offering Type: The company establishes the FPO type (dilutive or non-dilutive) and fixes a price band.
- Shareholder Participation: The company issues new shares to the public, institutional investors, or current shareholders.
- Share Allocation & Trading: After the offer is closed, the shares are allocated, and investors can trade them in the market.
Types Of Follow-on Public Offers (FPOs)
- Dilutive FPO: The firm releases new shares, adding to the total number of shares in the market, which can reduce current shareholders' percentage. The amount raised is usually used to reduce company growth or debt.
- Non-Dilutive FPO: The company's capital shares of existing shareholders, including promoters or significant investors, are sold in the market without adding to the overall shareholding. This doesn't alter the company's capital but makes the selling shareholders liquid.
Advantages Of Follow-on Public Offer (FPO)
- Raises Further Capital: Enables companies to raise money for expansion, debt repayment, or business improvement.
- Less Risk for Investors: As the company is already listed, investors can determine its financial well-being and previous performance.
- Enhances Market Liquidity: Additional shares in the market enhance trading and lower price volatility.
- Debt Repayment: Companies can use FPO proceeds to repay debts, enhancing financial health.
- Investor Confidence: An adequately planned FPO reflects good business growth and may attract additional investors.
- Retail Investor Opportunity: Enables current shareholders and new investors to purchase shares at a discounted or market price.
Key Takeaways
A Follow-on Public Offer (FPO) allows a publicly traded company to raise extra capital by issuing new shares after its Initial Public Offering (IPO). Companies use FPOs for growth, debt repayment, or expansion. FPOs are classified as dilutive (new shares issued) or non-dilutive (existing shareholders' sale of shares), affecting share price and ownership. Investors consider market conditions, company performance, and cost before investing in an FPO.
