FPO Full Form In Share Market

FPO Full Form In Share Market

The full form of FPO in share market is Follow-On Public Offer. It is a method by which listed companies raise additional equity capital in the stock market. This process allows companies to dilute their promoters’ holdings, reduce debt, or raise capital for future plans.

One real-life example of an FPO is the follow-on public offering that Tesla Inc. did.  Tesla announced an FPO in February 2020 to raise additional funds by selling the general public roughly $2 billion worth of common stock. With the help of the FPO, Tesla got more money, which it used to do things like increase production and research and development.

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What Is FPO In Stock Market?

An FPO (Follow-On Public Offer) in the stock market is an issue of shares to the public by a company that is already listed on the stock exchange. This method allows the company to raise additional capital.

In 2008, the State Bank of India (SBI), India’s premier public sector bank, leveraged a follow-on public offering (FPO) as a strategic move to bolster its finances. SBI announced an FPO aiming to accumulate a significant amount of around INR 16,736 crore. This financial exercise was done with the primary objective of supplementing its Tier I Capital, thereby ensuring a comfortable capital adequacy ratio.

This action was also aimed at fortifying SBI’s general business operations, allowing it to extend its lending operations and enhance its presence in the financial sector. The announcement and subsequent implementation of the FPO had a significant impact on the bank’s share price. Initially, there was a slight dip in the share price as markets adjusted to the news of increased share supply. 

Types of FPO

There are two types of FPOs: dilutive and non-dilutive.

1. Dilutive FPOs are issued when a company wishes to raise additional capital. This new issuance dilutes the EPS (Earnings Per Share) as the number of shares increases. 

A relevant example is the Follow-On Public Offer (FPO) executed by PowerGrid Corporation of India Ltd in 2010. The company, one of the largest transmission utilities in the world, planned to raise capital to fund its growing capital expenditure. The FPO was well-received, with PowerGrid successfully raising around INR 7,600 crores. This large inflow of funds was used to implement various ongoing and planned projects, especially those related to expanding the national power grid.

2. Non-dilutive FPOs occur when the company’s existing shareholders, such as the promoters, sell off some of their holdings. In this case, the EPS is not diluted as there’s no new issuance of shares. 

Another illustrative example occurred in 2020 with Yes Bank, one of India’s leading private-sector banks. To secure the bank’s financial position amid rising NPAs and capital needs, the promoters decided to sell part of their holdings through an FPO. They raised around INR 15,000 crores, considerably strengthening the bank’s capital base. 

FPO Vs IPO

The main difference between an IPO and an FPO is that an IPO is the first time a company sells shares to the public, while an FPO is when a company that has already had an IPO sells more shares.

ParametersFPO (Follow-on Public Offering)IPO (Initial Public Offering)
Purpose2dn time sale of shares by a publicly traded companyCompany’s first sale of shares to the public
TimingOccurs after the company’s IPO has already taken placeOccurs when a company goes public for the first time
Capital RaisedRaises additional capital to fund expansion, acquisitions, or other purposesTypically raises a significant amount of capital for the company
Investor DemandInvestor demand may vary depending on company performance and market conditionsGenerally generates high investor demand due to initial offering
Regulatory ProcessGenerally involves less regulatory scrutiny compared to the IPO processInvolves extensive regulatory requirements and scrutiny

What Is Difference Between OFS And FPO?

The main difference between OFS and FPO is that in OFS, existing shareholders sell their shares, while in FPO, the company itself sells more shares to the public.

Here’s an comparison table with bases of difference between OFS (Offer for Sale) and FPO (Follow-on Public Offering):

Basis of DifferenceOFS (Offer for Sale)FPO (Follow-on Public Offering)
Share SourceExisting shareholders sell their shares to the publicThe company issues additional shares to the public
Capital RaisedShareholders receive the proceeds from the saleThe company receives the proceeds from the issuance of new shares
Shareholder ControlExisting shareholders may reduce their stake or exit the companyExisting shareholders’ stake remains the same unless they participate in the FPO
PurposeShareholders seek liquidity or diversification of their investmentsThe company aims to raise capital for expansion, acquisitions, or other corporate purposes
Regulatory ProcessGenerally involves less regulatory scrutiny compared to an IPO or FPOInvolves regulatory requirements similar to an IPO, including disclosures and approvals
Pricing MechanismShareholders determine the price at which they are willing to sell their sharesThe company determines the price at which it offers the additional shares to the public
Shareholder TypeTypically involves existing institutional investors, promoters, or large shareholdersOpen to both institutiona