Companies make use of the stock market as one of the avenues where they can fetch money to fund their operations, expansion projects, or even reduce the company’s debt. In most cases, people understand IPO or initial public offering but not many are acquainted with the term FPO which means Follow-on Public Offering.
Knowing what an FPO is, how it works, investment opportunities, and how it differs from IPO is essential for exploration of new avenues. This article, powered by moneymoksh.com, your stock market education and insights guide, serves to address all of these concerns.
What is FPO?
A Follow-on Public Offering also known as FPO occurs when a certain publicly listed company decides to issue more shares after initial public offering (IPO). A major strategic goal of an FPO is to obtain additional capital from the market. FPO offers a path for a company to improve their balance sheet, reduce outstanding debt, or fund prospective new projects without going through the huddle of private investors and bank loans.
There are two classifications of FPO
Dilutive FPO: The company expands the total share issuance by creating new shares for distribution. This action, however, erodes the ownership stakes of existing shareholders to a slight extent.
Non-dilutive FPO: In this case, key shareholders, such as promoters or significant stakeholders, publicly sell portions of their shareholding. Since no additional shares are created, ownership is not diluted.
An FPO is beneficial for already listed companies on a stock exchange as they seek alternate sources of funding due to a need for growth or incurring financial debt restructuring.
What is the procedure for an FPO?
An FPO is very close to an IPO, but it has some differences. The process is as follows:
Approval from the Board: The board decides to use an FPO to raise the funds.
Draft Prospectus: The company drafts offers with the supervisory body such as SEBI in India outlining the need for funding, detailing the financial status of the organization, the offering, the reason of funds needed, the competition, and potential risks.
Pricing: His or her underwriters will select an offering fixed price or cap range for the shares together with the company.
Bidding Process: The investors submit their bids at specific range (in book building) or at set prices (in fixed-price issues).
Allotment: Following the closing of the bidding window, shares are distributed among the investors who have shown interest regarding the shares.
Listing: After newly issued shares are allocated, they are subsequently traded on stock exchanges.
As experts in public offerings, including FPOs, at moneymoksh.com we strive to provide insights and analyses that are helpful for investors looking to diversify their portfolio.
Investing in an FPO
Both novice and expert investors may see investing in an FPO as great bang for their buck as it provides tremendous value when approaching it with proper strategic thinking. The following are some tips to keep in mind.
Company Fundamentals: Through conducting due diligence, always check the corporation’s financial statements, profitability margins, debt figures and business expansion strategies.
Purpose of the FPO: Try to find out the reason why the corporation is trying to fundraise. While trying to pay down substantial debt can be a good reason, trying to raise cash to stop incurring operational losses usually is not.
Pricing: A discount to the market cost is often the standard for FPO shares, verify if their offer is significantly lower than the prevailing price. Also, examine if the current price worth investing at.
Market Sentiment: Always consider the standing company value, alongside the general condition of the economy.
Dilution Impact: In the case of a dilutive FPO, the corporation will gradually lose ownership to its existing shareholders.
At moneymoksh.com, we know that smart investing requires more than just an educated guess, we understand that smart investing is about thorough research and decision making. To make sure that you never miss out on anything important, our team works around the clock to inform you about new FPOs and other changes in the market.
FPO Process Explained
The FPO process is meant to be opened and clear for investors. Here is how the entire process works in a nutshell:
Announcement: As with traditional public offerings(FPOs), marketing begins with companies making bold public announcements and filling necessary legal documents.
Roadshows: Companies with FPOs, similarly to IPOs advertise FPO with retail and institutional investors.
Price Band and Dates: The retail offering is for a fixed date and a band of price that pre-determined by the seller.
Bidding/Subscription – Anytime before trade closing time bids can be made for stocks, these trades are often referred to as subscriptions.
Allotment: Judging with the number of subscribers the stock will be allocated or the money will be given back minus a few costs(if the shares were never issued to begin with).
Listing: After the various shares are sold, the stock part of the shares is given to the purchasers’ custodian account and traded externally.
Normally the system is faster and greatly less detailed than runs conducted with a new company on the market as the watchdog and company legal checkups are cut down in volume after the stock has been set up in the market.
Difference between IPO and FPO
Although IPOs and FPOs may appear to be the same at first glance, they aim to achieve different goals and attract slightly different sentiments from investors. Some of the distinguishing pointers include:
| Feature | IPO | FPO |
| Definition | First-time issue of shares by a company to the public | Second or subsequent issue of shares by a listed company |
| Company Status | Private to public transition | Already a public company |
| Purpose | Raise initial capital, listing on stock exchanges | Raise additional capital for expansion, debt repayment |
| Risk Factor | Higher risk due to lack of public track record | Lower risk as financials and market performance are already available |
| Investor Confidence | Based on potential and future prospects | Based on historical performance and future plans |
| Pricing | Often priced based on company valuation and demand | May offer shares at a discount to the current market price |
The ante is often viewed as an impressive chance to partake in the development of a firm and offers early investment. On the contrary, a FPO encourages stakeholders in active companies with an established reputation.
On our website moneymoksh.com, we help our readers understand the complexities of the investment world in order to make informed decisions about whether to invest in IPOs or FPOs based on their unique financial objectives, preferred level of risk, and current market conditions.
Final Thought
FPOs represent an attractive investment opportunity as they are issued by established listed companies that are keen on divesting to finance expansion, debt reduction, or market consolidation activities. Knowing the differences between IPOs and FPOs is important in order to make smart investments. Because FPOs are generally considered less risky than IPOs, some level of risk still exists and appropriate research and analysis is mandatory prior to any investment decision.
For those who are keen to look out for value opportunities in the stock market as well as keep track of the latest FPOs and IPOs and other insightful investments, moneymoksh.com is your ideal partner, bringing together smart investment tools and resources for achieving financial prosperity.