A follow on public offering (FPO) is a process by which a company that is already listed on a stock exchange issues new or existing shares to the public. FPOs are different from initial public offerings (IPOs), which are the first time a company offers its shares to the public.
FPOs can be done for various reasons, such as raising capital, reducing debt, expanding the business, or allowing existing shareholders to sell their stakes. Depending on the type and purpose of the FPO, it can have different effects on the company’s earnings per share (EPS), share price, and market value.
Types of FPOs
There are two main types of FPOs: dilutive and non-dilutive.
Dilutive FPO
A dilutive FPO is when a company issues new shares after its IPO, increasing the total number of shares outstanding. This means that the existing shareholders’ ownership percentage and EPS will decrease, as the earnings will be divided among more shares. However, a dilutive FPO can also benefit the company and its shareholders in the long run, as it can raise funds to invest in growth opportunities, reduce debt, or improve its capital structure.
Non-dilutive FPO
A non-dilutive FPO is when a company sells existing shares that are privately held by its founders, directors, or pre-IPO investors. This means that the total number of shares outstanding will not change, and neither will the EPS. However, a non-dilutive FPO can affect the share price and market value of the company, as it can increase the supply of shares in the market and reduce the demand. A non-dilutive FPO can also indicate that the insiders are losing confidence in the company’s prospects or want to diversify their portfolio.
How to Invest in an FPO
Investing in an FPO is similar to investing in an IPO, except that the share price is determined by the market rather than by the company and its underwriters. The company has to file a prospectus with the Securities and Exchange Board of India (SEBI) and disclose its financial statements, business plan, risk factors, and other relevant information. The investors can apply for the FPO through online or offline modes, using their demat account and PAN card details. The investors can also check the allotment status and listing date of the FPO on the websites of the stock exchanges or the registrar.
Advantages and Disadvantages of an FPO
An FPO can have both advantages and disadvantages for the company and its investors, depending on various factors such as the type, timing, pricing, and purpose of the FPO.
Some of the advantages of an FPO are:
- It can help the company raise capital to fund its growth plans, reduce debt, or improve its financial position.
- It can help the company increase its public visibility, credibility, and market share.
- It can help the existing shareholders diversify their portfolio or exit their investment at a favorable price.
- It can provide an opportunity for new investors to buy shares of an established company at a discounted price.
Some of the disadvantages of an FPO are:
- It can dilute the ownership and earnings of the existing shareholders if new shares are issued.
- It can lower the share price and market value of the company if existing shares are sold.
- It can signal that the company is facing financial difficulties or has limited growth prospects.
- It can incur additional costs and regulatory compliance for the company.
FAQ
Q: What is an FPO?
A: An FPO is a follow on public offering, which is when a company that is already listed on a stock exchange issues new or existing shares to the public.
Q: What is the difference between an IPO and an FPO?
A: An IPO is an initial public offering, which is when a company offers its shares to the public for the first time. An FPO is a follow on public offering, which is when a company issues additional shares after its IPO.
Q: What are the types of FPOs?
A: There are two main types of FPOs: dilutive and non-dilutive. A dilutive FPO is when a company issues new shares after its IPO, increasing the total number of shares outstanding. A non-dilutive FPO is when a company sells existing shares that are privately held by its founders, directors, or pre-IPO investors.
Q: How to invest in an FPO?
A: Investing in an FPO is similar to investing in an IPO, except that the share price is determined by the market rather than by the company and its underwriters. The company has to file a prospectus with the SEBI and disclose its financial statements, business plan, risk factors, and other relevant information. The investors can apply for the FPO through online or offline modes, using their demat account and PAN card details. The investors can also check the allotment status and listing date of the FPO on the websites of the stock exchanges or the registrar.
Q: What are the advantages and disadvantages of an FPO?
A: An FPO can have both advantages and disadvantages for the company and its investors, depending on various factors such as the type, timing, pricing, and purpose of the FPO. Some of the advantages are that it can help the company raise capital, increase its public visibility, and provide an opportunity for new investors. Some of the disadvantages are that it can dilute the ownership and earnings of the existing shareholders, lower the share price and market value of the company, and incur additional costs and regulatory compliance for the company.
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