In this article, we’ll discuss the meaning and full form of FPO, also known as Follow-on Public Offer. We’ll cover the details of what an FPO is, why a company would choose to do an FPO, and the benefits and drawbacks of conducting an FPO.
A Follow-on Public Offer (FPO) is a way for a company to raise additional capital by issuing shares to the public after their initial public offering (IPO). In this article, we’ll explore what an FPO is, how it works, and why a company might choose to do an FPO.
What is an FPO?
An FPO, or Follow-on Public Offer, is a type of public offering that allows a company to raise additional capital by issuing new shares to the public. An FPO can be conducted by any company that has already gone public through an IPO.
The Process of an FPO
The process of an FPO is similar to that of an IPO. The company must first file a registration statement with the Securities and Exchange Board of India (SEBI). This statement contains all the relevant information about the company and the securities being offered.
Once the registration statement is approved, the company can begin the process of marketing the FPO to potential investors. This can be done through roadshows, advertisements, and other promotional activities.
On the day of the FPO, investors can submit their bids for shares. The price of the shares is determined by the market demand for the shares, and the company can choose to accept or reject any bids.
Advantages of FPOs
There are several advantages of conducting an FPO. One of the primary benefits is that it allows the company to raise additional capital without taking on additional debt. This can help to improve the company’s financial position and allow it to pursue new growth opportunities.
Another advantage of an FPO is that it can help to increase the liquidity of the company’s stock. By issuing new shares to the public, more investors will have access to the stock, which can increase trading volume and make it easier for investors to buy and sell shares.
Disadvantages of FPOs
While there are several benefits to conducting an FPO, there are also some drawbacks to consider. One of the primary disadvantages is that it can dilute the ownership stake of existing shareholders. This means that the percentage of the company that each shareholder owns will be reduced.
Another potential disadvantage is that conducting an FPO can be expensive. The company will need to pay fees to underwriters and other professionals involved in the process, which can reduce the amount of capital that is actually raised.
Differences Between IPO and FPO
While an IPO and an FPO are similar in many ways, there are some key differences to consider. One of the primary differences is that an IPO is the first time that a company goes public, while an FPO is a subsequent offering after the IPO.
Another difference is that an FPO is typically smaller in scale than an IPO. This is because the company has already gone through the process of going public, and there is typically less hype and excitement around the offering.
FPO vs. Rights Issue
A rights issue is another way for a company to raise capital by issuing new shares to existing shareholders. The main difference between an FPO and a rights issue is that an FPO is offered to the general public, while a rights issue is only offered to existing shareholders.
In a rights issue, existing shareholders have the right to purchase additional shares at a discounted price. This can be a more cost-effective way for a company to raise capital, as it does not require the same marketing and promotional activities as an FPO.
Examples of FPOs in India
There have been several notable FPOs in India in recent years. One example is the FPO conducted by State Bank of India in 2010, which raised over Rs. 19,000 crore ($2.6 billion) from the public. Another example is the FPO conducted by Coal India in 2010, which raised over Rs. 15,000 crore ($2.1 billion).
FPO vs. QIP
A Qualified Institutional Placement (QIP) is another way for a company to raise capital by issuing new shares to institutional investors.
The main difference between an FPO and a QIP is that an FPO is offered to the general public, while a QIP is only offered to institutional investors.
In a QIP, the shares are offered to institutional investors such as mutual funds, banks, and insurance companies.
This can be a quicker and more cost-effective way for a company to raise capital, as it does not require the same marketing and promotional activities as an FPO.
Key Takeaways
- An FPO, or Follow-on Public Offer, is a type of public offering that allows a company to raise additional capital by issuing new shares to the public.
- The process of an FPO is similar to that of an IPO, and the company must file a registration statement with the Securities and Exchange Board of India (SEBI) before conducting the offering.
- Advantages of an FPO include the ability to raise additional capital without taking on additional debt and increasing the liquidity of the company’s stock.
- Disadvantages of an FPO include the potential for dilution of existing shareholders’ ownership stake and the expenses associated with conducting the offering.
- An FPO is different from a rights issue in that it is offered to the general public, while a rights issue is only offered to existing shareholders.
- Examples of FPOs in India include State Bank of India and Coal India.
- An FPO is also different from a QIP, which is offered only to institutional investors.
FAQs
- Can any company conduct an FPO? Yes, any company that has already gone public through an IPO can conduct an FPO.
- What is the process for conducting an FPO? The process is similar to that of an IPO, and the company must file a registration statement with SEBI before conducting the offering.
- What are the advantages of an FPO? Advantages include the ability to raise additional capital without taking on additional debt and increasing the liquidity of the company’s stock.
- Are there any disadvantages to conducting an FPO? Disadvantages include the potential for dilution of existing shareholders’ ownership stake and the expenses associated with conducting the offering.
- How is an FPO different from a QIP? An FPO is offered to the general public, while a QIP is only offered to institutional investors.