What is Follow-On Public Offer (FPO)?

 


A Follow-On Public Offering (FPO) is a process where a company that is already publicly listed on a stock exchange issues additional shares to investors. This is typically done to raise extra capital for various purposes such as funding new projects, expanding the business, reducing debt, or improving the company's financial health.

Here are some key points about FPOs:

Purpose: Companies use FPOs to secure additional funding after their initial public offering (IPO). The raised capital can be used for growth initiatives, paying down debt, or other corporate needs.

Types:

  1. Dilutive FPO: This type involves issuing new shares, which increases the total number of shares outstanding. This can dilute the value of existing shares but provides the company with new capital.
  2. Non-dilutive FPO: This type involves existing shareholders, such as promoters or large stakeholders, selling their shares. It does not change the total number of shares outstanding and does not raise new capital for the company.
  3. Pricing: The price of the shares in an FPO is usually set at a discount to the current market price to attract investors. This discount can vary based on market conditions and the company’s financial situation.

Process:

  1. The company announces its intention to conduct an FPO.
  2. Regulatory approvals are sought, and a prospectus is issued detailing the terms and conditions.
  3. The company markets the offering to potential investors.
  4. Shares are allocated and sold to investors.

Benefits:

  1. Provides a way for companies to raise additional funds without taking on more debt.
  2. Can improve the company’s equity base and financial stability.
  3. Offers existing shareholders a chance to buy more shares at a potentially lower price.

Risks:

  1. Dilution of existing shareholders' equity if new shares are issued.
  2. The market may react negatively to the perception that the company needs more capital, which can affect the stock price.
  3. FPOs are a common method for companies to access capital markets to fund their growth and operational needs, complementing other financing methods like debt issuance or private placements.

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