A publicly traded company will issue shares to investors as part of a follow-on public offer (FPO). A follow-on offering is the issuance of additional shares by a company following an IPO. (IPO).
Secondary offerings are also known as follow-on offerings.
What is an FPO (Follow-On Public Offer)?
A FPO, or Follow-On Public Offer, is a process by which a publicly traded company raises additional capital by issuing new shares to the public. An FPO occurs when an already listed company decides to issue more shares to raise funds for various purposes, such as expansion, debt repayment, or acquisitions, as opposed to an IPO, which occurs when a company goes public for the first time.
Understanding the Process
Several key steps are involved in the FPO process, which allows the company to issue additional shares and offer them to potential investors. Let us examine these steps in greater detail:
Company Evaluation and Decision: Prior to pursuing an FPO, the company assesses its financial position, market conditions, and funding requirements. The company’s management decides on the number of shares to be issued and the offering price based on these factors.
Appointing Underwriters: To help with the FPO, the company appoints underwriters, typically investment banks, who assist in determining the offering price, managing the issuance process, and ensuring regulatory compliance.
Prospectus Drafting: A prospectus is created that contains detailed information about the company, its financials, the FPO’s objectives, and the risks associated with it. The prospectus is an important document that potential investors use to evaluate the investment opportunity.
Regulatory Approvals: The prospectus is submitted to regulatory authorities such as the Securities and Exchange Board of India (SEBI) for review and approval. This step ensures that the FPO complies with all applicable regulations and protects investors’ interests.
Marketing and roadshows: After obtaining regulatory approvals, the company, in collaboration with the underwriters, conducts marketing activities and roadshows to raise awareness and generate interest among potential investors. These activities are intended to demonstrate the FPO’s investment potential and attract investors.
Subscription Period: Interested investors can submit applications to purchase newly issued shares during the subscription period. The subscription price is typically fixed, but investors can place bids at a price higher than the floor price.
Allotment and Listing: Following the conclusion of the subscription period, the company finalizes the allotment of shares based on investor demand. The allotted shares are credited to the demat accounts of the investors. Following that, the company’s shares are listed on the stock exchange, allowing for secondary market trading.
Advantages of FPO
FPOs offer several advantages to both the company and investors:
- Capital Infusion: Companies can raise funds for expansion plans, debt repayment, research and development, or strategic acquisitions by issuing additional shares. Companies can use FPOs to strengthen their financial position and pursue growth opportunities.
- Improved Market Visibility: Conducting an FPO can improve the company’s market visibility and reputation. It enables the company to show off its financial health, future prospects, and growth strategies to a larger audience of investors.
- Diversification and Liquidity for Existing Shareholders: Existing Shareholders’ Diversification and Liquidity: FPOs allow existing shareholders, including promoters and early investors, to partially or fully exit their holdings, realizing their investments. This liquidity can allow them to diversify their portfolios or reinvest in other ventures.
- Diversification and Liquidity for Existing Shareholders: FPOs provide investors with the opportunity to invest in well-established companies with proven track records. It enables them to take part in the company’s growth story while potentially benefiting from capital appreciation and dividends.
- Opportunity for Investors: FPOs offer investors a chance to invest in well-established companies with proven track records. It enables them to take part in the company’s growth story while potentially benefiting from capital appreciation and dividends.
FPO vs. IPO: Key Differences
While both FPOs and IPOs involve the issuance of shares to the public, there are key differences between the two:
| Follow-On Public Offer (FPO) | Initial Public Offering (IPO) |
|---|---|
| Issued by an already listed company | Issued by a company going public for the first time |
| Purpose: Raise additional capital | Purpose: Raise capital for expansion or going public |
| Shares offered to existing and new investors | Shares offered to new investors only |
| Company already has a trading history | Company is not yet listed on any stock exchange |
| Pricing based on prevailing market conditions | Pricing determined through book-building process |
Conclusion
Finally, a Follow-On Public Offer (FPO) is a process by which a publicly traded company raises additional capital by issuing new shares to the general public. It allows businesses to secure funds for a variety of purposes while also allowing investors to participate in their growth. Investors can make informed decisions and capitalize on potential investment opportunities by understanding the FPO process and its benefits.
FOR MORE INFO CLICK THIS SITE:https://learningsharks.in/
FOLLOW OUR PAGE:https://www.instagram.com/learningsharks/?hl=en