What is Follow on Public Offer (FPO)?

The FPO full form is a Follow-On Public Offering. It is the process by which a business that is already listed on a stock exchange issues additional shares to the public to raise more capital.

After a successful Initial Public Offering (IPO), all public issues are referred to be FPOs.

For Follow-On Public Offerings, the regulatory requirements are less strict even though the FPO procedure is comparable to the IPO process. This occurs as a result of the business's stock exchange listing.

It is theoretically possible for a corporation to issue an unlimited number of follow-on public offerings. On the other hand, a large dilution of ownership and a division in shareholder dividends’ may result from issuing too many FPOs. Let us understand more about what is fpo in share market in this article. 

Understanding Follow on Public Offers (FPO)

Understanding Follow on public offer meaning is essential in the share market. It is the procedure by which a business offers fresh shares to investors after being listed on the stock exchange via an Initial Public Offering. The FPO is a straight follow-up to an IPO and allows corporations to obtain new capital after previously raising cash through the IPO.

An FPO is used to obtain more cash and pay off any existing debt of the firm. The procedure for doing an FPO is identical to that of an IPO. However, as compared to an IPO, the FPO procedure is less expensive.

How does a Follow On Public Offer Work?

After understanding fpo meaning, let us know how to  issue additional shares to investors, an FPO follows these steps.

• The Appointment of Intermediaries
  Companies interested in issuing FPOs appoint intermediaries such as investment banks and underwriters. 
• 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.
• 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.
• 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.
• 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 the stock exchanges.

Example of a Follow-On Public Offer

Many Indian enterprises have used an FPO to obtain extra money by issuing new shares. Ruchi Soya, which is owned by Patanjali, is one such case. Ruchi Soya wished to acquire more cash and published its FPO on March 24th, 2022, which was open for investor subscription until March 28th, 2022.
The shares had a face value of Rs 2 and were priced between Rs 615 and Rs 650 per share. The FPO issuance had a lot size of 21 shares, with a total issue size of Rs 4,300 crores. On April 8, 2022, the shares were listed on the stock markets.

Types of Follow On Public Offers

After learning what FPO is in the share market with examples and how it works, let’s understand the types of follow on public offers. There are three types of FPOs:

Diluted FPO

This is when a company issues new shares to raise capital. This increases the company's total shares outstanding, lowering Earnings Per Share (EPS). As new investors join as shareholders, a diluted FPO always lowers the company's share price. However, the company's value remains the same. Companies can change their capital structure or reduce their debt by raising money through a diluted FPO.

Non-Diluted FPO

A non-diluted FPO occurs when the company's biggest shareholders, such as its founders and board, sell their shares privately. In a non-diluted FPO, the number of outstanding shares does not increase, but those that can be purchased by the public do. This method doesn't increase or decrease shares like a diluted IPO. Since the number of shares stays the same, Earnings Per Share (EPS) stays the same. In a non-diluted FPO, the cash proceeds go directly to the biggest shareholders.

At-the-Market FPO

A company can raise funds based on the real-time price of its shares. A company issuing fresh shares through FPO can pull out of the offering if its share price falls. Due to its ability to offer shares on the secondary market at current market prices, at-the-market FPOs are also called controlled equity distributions.

FPO vs IPO

To raise cash for firms, the Indian stock market employs IPOs and FPOs. IPOs diminish ownership, but FPOs enable businesses to diversify their share base, acquire more cash, or decrease debt.

Benefits of Follow on Public Offers

FPOs are an effective way for companies to ensure smooth operation. A company can benefit from an FPO in the following ways.

• Capital Raising 
  An FPO is often launched to raise additional capital. Funds from these investments can be used by companies to pay off their debt or invest in expansion. 
• An Increase In Liquidity
  The FPO increases its liquidity by increasing the availability of the company's shares on the market. As a result, investors can buy and sell shares more easily.
• Diversification 
  As new investors buy shares, an FPO enables companies to diversify their investor base. In addition, it diversifies the company's equity base. 
• Improved Market Reputation 
  FPOs can enhance a company's reputation in the market because they demonstrate investors' confidence in the company's financial stability and growth potential.

Why Do Companies Issue a Follow-On Offering?

There are several reasons why a business could wish to increase its equity. Here are a few reasons why companies issue a FPO:

• A public corporation seeks to raise additional cash by issuing new shares. 
• A company wants to pay off its present debt with the money it receives from the sale of its shares, particularly if that debt is too large at the moment. They aim to stay clear of debt covenants, which may impose severe limitations on how businesses operate.
• To maintain the targeted debt-to-value ratio, a company might rebalance its capital structure by issuing additional shares to raise equity.
• They want to issue more shares through another offering because the IPO did not raise enough money to support their expansion objectives.
• The business would rather raise money in order to finance new initiatives, acquisitions, or business expansions, the company would rather obtain cash through the sale of shares than increasing debt and interest expenses.

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 crowded market, emphasising the importance of embracing the possibilities offered by FPOs. Also, Download a share market app to explore more things in trading.

You may also want to know:

Hyundai Motor India IPO
Bajaj Housing Finance IPO
Emcure Pharmaceuticals IPO