What is Follow on Public Offer (FPO)?

FPO full form is Follow on Public Offer. FPO is a process through which a listed company raises additional capital by issuing new shares to the public after its initial public offering (IPO). In an FPO, shares are offered by a company to existing and new investors to meet funding needs like business expansion, debt reduction, or operational requirements. An FPO can be issued like a dilutive offer, where new shares are created and the company’s equity base increases, or as a non-dilutive offer, where existing shareholders sell their shares without changing the total share capital. This article explains what is FPO in share market, how it works, its benefits, and more.  

Example of a Follow-On Public Offer 

Let’s say a company has listed itself on the stock exchange and may launch a follow-on public offer to raise additional funds. So, if a listed company has issued new shares to the public to finance expansion or repay debt, this share sale is called an FPO. Since the company is already trading on the stock market, investors can easily evaluate its past performance before investing. 

With this simple example, investors can understand what is FPO in stock market and how it works. Let’s now understand the types of FPO. 

How Does a Follow On Public Offer Work? 

After understanding FPO meaning, let’s understand how it works. Here’s a step-by-step process on how FPO works. 

Step 1: Appointment of Intermediaries - Companies interested in issuing FPOs appoint intermediaries such as investment banks and underwriters.  

Step 2: Offer Document to SEBI - A detailed offer document containing information such as FPO size and lot size is prepared by the company and filed with SEBI. 

Step 3: Pricing - When SEBI approves the offer document, the company sets a price per share for the FPO. This is the price at which investors can purchase a lot of shares. 

Step 4: Opening and Closing - An FPO is open for a period during which investors can submit bids. FPOs are closed as soon as the bidding period is over. 

Step 5: Allotment and Listing - Upon closing the FPO application, the company issues the shares to investors along with the final offer price. After that, the shares are listed on stock exchanges. 

Types of Follow On Public Offers 

The two main types of FPO are Dilutive FPO and Non-Dilutive FPO. 

Benefits of Follow on Public Offers 

The following are the key benefits of the FPO.  

• Access to Additional Capital: An FPO allows a listed company to raise fresh funds from the market without increasing its debt burden. 
• Better Market Acceptability: FPO is generally a sign of business stability and growth. It also enhances investor confidence. 
• Enhanced Share Redemption: It allows the current stockholders to redeem their shares, enhancing the market liquidity. 
• Efficient Price Discovery: The issue price helps determine a fair market value for the company’s shares based on investor demand. 

Why Do Companies Issue a Follow-On Offering? 

The following are the reasons why companies issue a follow-on offering. 

• Raising Additional Capital - Companies issue a follow-on offering to raise fresh funds for business expansion, working capital needs, or debt repayment. It allows them to access capital from the market without relying heavily on borrowings. 
• Funding Growth and Expansion Plans - An FPO helps finance new projects, capacity expansion, or entry into new markets. This supports long-term growth while maintaining a balanced capital structure. 
• Reducing Debt and Improving Financial Health - Funds raised through an FPO can be used to repay existing loans. Lower debt improves cash flow, reduces interest costs, and strengthens the company’s balance sheet. 
• Enhancing Market Liquidity - By increasing the number of shares available for trading, an FPO improves stock liquidity. Higher liquidity makes it easier for investors to buy and sell shares in the market. 

Disclaimer: All investments are subject to market risks, economic conditions, regulatory changes, and other external factors. Returns are not guaranteed and may vary based on market performance and investment tenure. Investors should assess their risk tolerance and financial objectives, conduct their own research, and consult a qualified financial advisor before making any investment decisions. 

Conclusion 

FPOs, or follow on public offers, are crucial in the stock market for companies and investors. They strengthen a company's finances and diversify portfolios. FPOs also signify investor confidence in a company's future. BlinkX helps investors make informed decisions in a dynamic market, emphasising the importance of embracing the possibilities offered by FPOs. Also, download a share market app to explore more things in trading.