FPO, or Follow-On Public Offer, is a process where an already listed company issues additional shares to the public to raise more capital. It allows the company to access more funds from the market by offering more shares.
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What Is FPO in Stock Market?
FPO in the stock market refers to a company issuing additional shares to investors after its initial public offering (IPO). This process is used by companies to raise extra capital for various purposes such as expansion, debt reduction, or other financial needs.
In an FPO, the company offers new shares or existing shares to the public. The price of the shares in an FPO is usually lower than the market price, making it attractive to investors. FPOs are commonly used by companies looking to increase their equity base or restructure their debt. This offering provides an opportunity for existing shareholders to buy more shares and for new investors to enter the market.
Follow On Public Offer Example
An example of a Follow-On Public Offer (FPO) is when a company that has already gone public decides to issue additional shares to raise more capital. This move allows the company to access more funds while offering existing and new investors an opportunity to purchase shares.
Suppose a company, ABC Ltd., had an initial public offering (IPO) where it issued shares at ₹100 each. A year later, ABC Ltd. wants to raise additional capital for expansion and decides to offer an FPO at ₹90 per share. Investors, both existing and new, can purchase these shares at the offered price, which is typically lower than the current market price. If ABC Ltd. issues 1,00,000 shares in this FPO, the company can raise ₹90,00,000, which can be used for its expansion plans.
Types of FPO
The main types of Follow-On Public Offers (FPO) are:
- Dilutive FPO
- Non-dilutive FPO
- At-the-market FPO
Dilutive FPO
A dilutive FPO occurs when a company issues additional shares to raise new capital. This increase in the total number of shares reduces the ownership percentage of existing shareholders, but it provides the company with fresh funds.
Suppose XYZ Ltd. has 10,00,000 shares outstanding and decides to issue an additional 2,00,000 shares through a dilutive FPO. This increases the total shares to 12,00,000, reducing each existing shareholder’s ownership percentage. However, the capital raised from the new shares will be used for business expansion, benefiting the company in the long run.
Non-dilutive FPO
A non-dilutive FPO involves the sale of existing shares by major shareholders. No new shares are issued, so there is no dilution of ownership, but the existing shareholders’ shares are offered to the public.
Let’s consider a scenario where a large investor in DEF Ltd. wants to sell a significant portion of their shares. Instead of selling them directly on the market, they offer these shares through a non-dilutive FPO. The company doesn’t issue new shares, so the total number of shares remains the same, and the ownership structure isn’t diluted.
At-the-market FPO
In this type of FPO, the company sells shares in the open market at the current market price. The number of shares sold and the timing is flexible, allowing the company to raise capital as needed.
ABC Corp. decides to issue shares through an at-the-market FPO. Over several months, the company sells shares directly in the open market whenever it needs capital. If the current market price is ₹150 per share, the company can decide to sell 50,000 shares when the price is favorable, raising ₹75,00,000 as needed for its projects.
Advantages of Follow On Public Offer
The main advantage of a Follow-On Public Offer (FPO) is that it allows a company to raise additional capital without taking on debt. This provides financial flexibility for expansion or other needs. Other Advantages of Follow On Public Offer:
- Enhanced Liquidity: An FPO increases the number of shares available in the market, improving liquidity and making it easier for investors to buy and sell shares. This added liquidity can lead to more stable and predictable stock prices.
- Debt Reduction: The funds raised through an FPO can be used to pay off existing debt, reducing the company’s financial burden and improving its balance sheet. Lower debt levels can also enhance the company’s credit rating.
- Investor Confidence: A successful FPO often signals strong market confidence in the company, potentially boosting the stock price and attracting more investors. This increased confidence can also lead to more favorable terms in future financing.
- Opportunity for New Investors: FPOs typically offer shares at a price lower than the market rate, providing an opportunity for new investors to enter the market at a favorable price. This can increase demand for the stock and drive future growth.
- Broader Ownership Base: By issuing more shares, an FPO can help diversify the company’s ownership base, reducing the influence of major shareholders and potentially leading to better corporate governance. A broader ownership base can also lead to greater market stability.
Disadvantages of Follow On Public Offer
The main disadvantage of a Follow-On Public Offer (FPO) is that it can dilute the ownership of existing shareholders, reducing their percentage of ownership and potentially their influence in the company. Other Disadvantages of Follow On Public Offer:
- Pressure on Stock Price: The issuance of additional shares can increase the supply in the market, potentially leading to a drop in the stock price. This can negatively impact existing shareholders who may see a decline in the value of their holdings.
- Market Perception: An FPO might signal to the market that the company is in need of capital, which could be perceived as a sign of financial weakness. This perception can lead to reduced investor confidence and a potential decline in stock price.
- Costs and Regulatory Requirements: Conducting an FPO involves significant costs related to regulatory compliance, underwriting fees, and marketing. These expenses can reduce the net proceeds from the offer and add to the company’s financial burdens.
FPO vs IPO
The main difference between an FPO and an IPO is that an FPO is a follow-up offering of shares by a company that is already publicly listed, while an IPO is the initial offering of shares by a company entering the public market for the first time.
| Parameter | FPO (Follow-On Public Offer) | IPO (Initial Public Offer) |
| Purpose | To raise additional capital after IPO | To raise capital by going public for the first time |
| Company Status | Already publicly listed | Private company going public |
| Impact on Ownership | Can dilute existing shareholders’ ownership | Establishes public ownership |
| Risk Level | Generally lower, as the company is already established | Higher, as the company is untested in public markets |
| Investor Information | More data available due to previous public filings | Limited data, as the company is new to public investors |
How To Apply For An FPO?
Applying for an FPO requires the same process as an IPO. Retail investors above 18 with a valid PAN need a Demat account, trading account, and bank account. Shares can be bought through a broker or ASBA services. Steps to apply include:
- Review Offer Details: Start by reading the FPO prospectus, which includes the offer price, number of shares available, and the timeline for the offer. Understanding these details helps in making an informed investment decision.
- Choose Application Method: Decide whether to apply online through your brokerage account or offline by submitting a physical application form. Online applications are generally faster and more convenient.
- Fill Out the Application: Complete the application form, either online or offline, providing necessary details like the number of shares you wish to purchase and your Demat account information. Double-check the information for accuracy.
- Make the Payment: Ensure you have sufficient funds in your linked bank account to cover the purchase. Payment can be made directly through net banking for online applications or via cheque/demand draft for offline submissions.
- Submit the Application: For online applications, simply submit the form through your broker’s platform. For offline applications, submit the completed form to your broker or the designated bank branches before the deadline.
What Is FPO? – Quick Summary
- FPO, or Follow-On Public Offer, is when an already listed company issues additional shares to the public to raise more capital.
- In the stock market, FPO refers to a company issuing extra shares to investors after its IPO to raise additional funds.
- An example of an FPO is when a company issues additional shares at a price lower than the current market price to raise more capital.
- Types of FPO include Dilutive FPO, Non-dilutive FPO, and At-the-market FPO.
- The main advantage of an FPO is that it allows the company to raise capital without taking on debt.
- The main disadvantage of an FPO is that it can dilute the ownership of existing shareholders.
- The main difference between an FPO and an IPO is that an FPO is a follow-up offering by an already listed company, while an IPO is the initial public offering.
- Applying for an FPO requires being at least 18 years old, having a Demat account, trading account, bank account, and can be done through a broker or ASBA services.
- Alice Blue offers no-cost investments in IPOs, mutual funds, and stocks.
FPO Full Form in Stock Market – FAQs
FPO, or Follow-On Public Offer, is when a publicly listed company issues additional shares to raise more capital. This offering occurs after the company’s initial public offering (IPO) and is used to fund further expansion or debt reduction.
A non-dilutive FPO occurs when existing major shareholders sell their shares to the public without the company issuing new shares. This process does not dilute the ownership percentage of existing shareholders but provides liquidity for the selling shareholders.
The main difference between FPO and IPO is that an FPO is a subsequent share offering by an already listed company, whereas an IPO is the first time a company offers its shares to the public.
Yes, FPO shares can be sold just like any other publicly traded shares. Once the shares are allotted to investors, they can be traded on the stock exchange, subject to market conditions and regulations.
To buy FPO shares, investors must apply through a broker or a bank’s ASBA service using their Demat and trading accounts. The process involves filling out an application form and ensuring sufficient funds are available for purchase.
Investing in an FPO can be a good opportunity if the company is fundamentally strong and the offering is priced attractively. However, investors should evaluate the company’s financial health and market conditions before making an investment decision.
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