What is Follow on Public Offer(FPO)?

A Follow-on-Public Offer (FPO) is a way for companies to raise more money by offering additional shares to the public. This process happens after an Initial Public Offer (IPO). If you are an investor or just someone curious about how businesses raise funds, understanding FPOs can help you make better decisions. 

Follow on Public Offer (FPO) Overview

A Follow on Public Offer (FPO) is a process where a company that has already gone public offers more shares to the public. These shares can be newly issued or sold by existing shareholders. It is a way for companies to raise more capital after their IPO.

FPOs are similar to IPOs, but they are only available to companies that have already listed their shares on a BSE or NSE stock exchange. It helps companies raise funds without going through the complete IPO process again. Investors can buy these new shares, and the company can use the funds for various purposes like expanding its business, paying off debt, or improving its financial position.

FPOs can be an important tool for both the company and the investors. For companies, it is a way to get more capital, while for investors, it provides an opportunity to buy shares at a potentially lower price than in the open market.

Why Do Companies Opt for FPO?

Companies choose to issue a Follow-on Public Offer (FPO) for various reasons. Here are some of the reasons:

1. Raising Additional Capital
   Companies may need extra funds to finance growth, new projects, or reduce debt. FPO allows them to raise capital by selling shares to the public.
2. Increase Public Shareholding
   To comply with regulations or improve the marketability of their shares, companies may issue more shares, increasing the number of public shareholders.
3. Debt Reduction
   If a company has high debt, it might use the funds raised through FPO to pay off loans, reducing interest costs and improving its financial health.
4. Expansion Plans
   Companies looking to expand operations, enter new markets, or acquire other businesses may need extra funds. FPO provides a way to gather the required capital.
5. Improving Liquidity
   By offering more shares, companies can boost liquidity, making it easier for investors to buy and sell shares on the stock market.

Types of FPO

When it comes to Follow-on Public Offers (FPO), there are two main types: Dilutive FPO and Non-Dilutive FPO. Each serves a different purpose and has unique characteristics. 

1.Dilutive FPO

• In a dilutive FPO, the company issues additional shares to the public. This increases the total number of shares in circulation. 
• The aim is to raise capital for the company. 
• However, since more shares are being issued, existing shareholders may see a decrease in their ownership percentage.

2. Non-Dilutive FPO

• In a non-dilutive FPO, the company doesn’t issue new shares. 
• Instead, the shares are sold by existing shareholders, such as promoters or early investors. 
• This type of FPO doesn’t affect the company’s total shareholding but allows existing shareholders to reduce their stake in the company.

Also Read: Difference Between Open and Close-Ended Mutual Funds

Why Does a Company Need an FPO?

A company may decide to issue a Follow-on Public Offer (FPO) for several important reasons. 

1. To Raise Funds for Expansion
   Companies often need additional money to expand their business. Whether it’s opening new branches, launching new products, or entering new markets, an FPO can provide the required capital.
2. Debt Repayment
   Many companies use FPO proceeds to pay off existing debts. Reducing debt helps lower interest payments, making the business financially stable and improving its credit rating.
3. Acquiring Other Companies
   If a company wants to acquire another business, an FPO is a great way to raise the necessary funds. The extra money can be used to purchase assets or shares of other companies.
4. To Improve Public Shareholding
   Companies sometimes issue an FPO to meet regulatory requirements. Certain stock exchanges require a minimum percentage of shares to be held by the public. An FPO helps achieve this.
5. Strengthening the Brand
   Issuing an FPO increases a company’s market presence. More shares in the market mean greater visibility, which can improve brand recognition and attract more investors.

FPO vs. Listed Shares

When comparing FPO (Follow-on Public Offer) with listed shares, there are key differences. 

Issuance Process

• FPO: New shares are issued by the company to raise capital, either from existing shareholders or the public.
• Listed Shares: These are shares that are already trading on the stock exchange. They are not newly issued and are available for buying and selling.

Purpose

• FPO: The goal is to raise funds for the company. This could be for expansion, debt repayment, or other purposes.
• Listed Shares: These shares are traded by investors who want to buy or sell them, and their price is based on market demand.

Impact on Shareholding

• FPO: Issuing new shares can dilute the ownership of existing shareholders because the total number of shares increases.
• Listed Shares: There’s no change in the number of shares when they are bought or sold. Existing shareholders keep their percentage of ownership.

Availability

• FPO: Available only for a limited time during the offer period.
• Listed Shares: Available for trading anytime during market hours, as they are already part of the stock market.

Conclusion 

In conclusion, a Follow on Public Offer (FPO) is an important tool for companies that are already publicly listed. It allows them to raise additional capital for various purposes, such as debt reduction or expansion. As an investor, understanding the types of FPOs and how they differ from listed shares or IPOs can help you make more informed decisions. Whether to invest in FPOs or listed shares depends on your investment goals and risk appetite. Always do your research before making any investment decision.