Introduction to Follow On Public Offer (FPO)
FPOs (Follow ON Public Offers) are also called secondary offerings because they are issued by an already exchange-listed company to raise equity or reduce debt. The difference between an IPO and FPO is the timing and the listing; FPOs don’t exist without a company being listed and already having its IPO on the market.
Understanding Follow On Public Offer (FPO)
At the time of listing, a company launches its IPO for the market to subscribe to to raise capital for its operations, in promise for a return on the public’s investments. The shares offered may be new shares given by the company, or old shares of the promoters or private shares. This defines the types of shares offered: dilutive (new) shares and non-dilutive shares. When diluted follow-on shares are issued, the company is primarily choosing to reduce its debt by increasing the number of shares. It tends to decrease the EPS, which significantly changes the company’s capital structure. Non-diluted offerings are the actual secondary offerings where no new shares are being issued; only old, privately-held shares that are going public. It does not reduce the EPS; EPS remains unchanged. On the basis of the price band, an At-The-Market offering happens. Since the FPO price is decided by the market forces, in sharp contrast with an IPO price that is predetermined in a limited price range, the company can decide to step back if the price on that day is not favourable for them, stepping back from issuing the shares for that day. This allows the company to raise money as and when required.
Highlights of Follow On Public Offer (FPO)
The prices listed for FPOs are less than the existing market price of the listed shares. Eventually, the market price of the share too comes down to the FPO issue price. Investing in FPOs is less risky than investing in an IPO, since the company has already shown its performance in the market. Adequate but not complex information is available for less aware investors to make their investment decision.
