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These FPOs involve the issuance of new shares by a company to public investors. This will dilute the ownership stake of existing shareholders, as they will now own a smaller percentage of the company. But for the company, it’s a way to gather money for growing and expanding its business. Many Indian enterprises have used an FPO to obtain extra money by issuing new shares. The FPO issuance had a lot size of 21 shares, with a total issue size of Rs 4,300 crores. It’s when a company that’s already listed on the stock market issues more shares to raise additional funds from the public.

It raised approximately $1.67 billion at a price of $85 per share, the lower end of its estimates. In contrast, the follow-on offering conducted in 2005 raised more than $4 billion at $295, the company’s share price a year later. In some cases, the company might simply need to raise capital to finance its debt or make acquisitions.

Price to Sales Ratio: A Key Metric for Understanding Company Value

A company dilutes its Equity by raising more shares as it might not be able to raise cash from banks or NBFC’s due to weak Balance Sheets or inadequate collaterals. Theoretically, there’s no limit on the number of Follow-On Public Offerings a company may issue. However, making too many FPOs can lead to significant dilution of ownership and erosion of shareholder wealth. The perception of an FPO being good or bad varies; it can be positive as it raises capital but may dilute existing shares. Private entities generally use IPOs to expand their funds, while government entities use FPOs to reduce their stake in the company or cover their debts. At-the-market (ATM) offerings offer various benefits, including minimal market impact.

In the case of an FPO, the Earnings Per Share of the company reduces as more shares float in the stock market. A well-publicized follow-on offering was that of Alphabet Inc. subsidiary Google (GOOG), which conducted a follow-on offering in 2005. The Mountain View company’s initial public offering (IPO) was conducted in 2004 using the Dutch Auction method.

In some cases, the existing shareholders are interested in offerings to cash out their existing holdings. In others, companies want to raise capital to refinance their debt during low-interest rates. Therefore, investors must be diligent and evaluate the reasons for the company offering before they apply for an FPO.

When the company raises capital by issuing completely new shares, the number of shares increases. However, the amount of earnings available for shareholders remains the same. Such an offering is known as a dilutive FPO, leading to a dilution of the EPS. This approach is useful when directors or substantial shareholders sell off privately held shares.

The IPO and FPO full form is Initial Public Offering and FPO is Follow on Public Offer. One of the types results in diluting the ownership, while the other results in no valuation change. Funds raised from such an FPO by the company are allocated for expansion activities or to pay for debts. Elearnmarkets (ELM) is a complete financial market portal where the market experts have taken the onus to spread financial education.

What does FPO stand for?

The FPO does have a lot of benefits, but it is not devoid of disadvantages. There is one limitation of the process that must be known to the companies before they issue additional shares to the investors/shareholders. The follow-on public offering is a scheme that has multiple benefits.

Advantages and Disadvantages of FPO

In comparison to FPOs, an IPO can provide higher returns for investors and may turn out to be profitable for them. During the 1980s and 1990s, policy planners realized that a well-developed capital market is essential for sustainable growth in an emerging market economy like India. A package of reforms aimed at enhancing market quality in terms of effectiveness, transparency, and pricing policies was introduced shortly.

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The FPO process is similar to an IPO, requiring issuers to draft an offering document and allot shares to investors before listing them on the stock exchanges. A Follow-on Public Offering (FPO) is when a company that is already publicly traded issues additional shares to investors to raise funds. This can be done for various reasons, such as funding expansion, reducing debt, or improving financial stability. The first type of FPO is dilutive to investors, as the company’s board of directors agrees to increase the share float level or the number of shares available. Dilutive FPO is when a company issues additional shares and offers them to the public. In simpler words, it is when the board issues a new set of shares and increases the number of outstanding shares of the company.

It is one of the most lucrative and easiest ways for companies to raise funds. Non Diluted FPO is when the existing shareholders of the company sell their shares to the public. Usually, these shareholders are company founders, promotors, board of directors or pre IPO investors. A company planning a Follow-on Public Offer (FPO) first files the offer documents with the relevant stock exchange regulator, outlining the details of the proposed share sale.

The shares issued in a non-dilutive IPO are those that are already in existence. This means that it is the directors or the bigger shareholders who sell their shares and offer them to the public. When more investors invest in a company’s shares, it automatically attracts the attention of other investors who are keen to make investments.

Unlike an FPO, an IPO occurs when a private company issues shares to the public for the very first time through a stock exchange. An at-the-market offering (ATM) is a type of FPO by which a company can offer secondary public shares on any given day, usually depending on the prevailing market price, to raise capital. There are two different kinds of FPOs that companies can opt to issue – dilutive FPOs and non-dilutive FPOs. In a dilutive FPO, the company issues more shares to the investors, which has the what is follow on public offer effect of diluting the control of the company.

An FPO is ideal for a company to raise additional capital from the general public if it needs more funds after raising capital through an IPO. Since the company has already listed its shares through IO, it can only raise additional capital through an FPO, where current or new investors can invest and increase their ownership. Certain prerequisites for the new offering are categorized as a follow-on public offering. If given to existing shareholders, one such requirement should be offered to the general public, i.e., issued in the open market.

How can an FPO impact existing shareholders?

Conclusion FPOs, or follow on public offers, are crucial in the stock market for companies and investors. Blinkx helps investors make informed decisions in a crowded market, emphasising the importance of embracing the possibilities offered by FPOs. A Follow-on Public Offering (FPO) is a strategic tool that enables companies to raise additional funds while offering investors a chance to participate in their growth. While FPOs can provide opportunities for long-term gains, it is crucial to analyze the company’s financials, market conditions, and the purpose behind the offering before investing.

• To raise this money, it can offer more shares to the public through a Follow-on Public Offer (FPO).
• Ruchi Soya wanted to raise additional capital and launched its FPO on March 24th 2022, which was open for subscription to investors till 28th March 2022.
• Commonly referred to as a secondary market offering, there is no benefit to the company or current shareholders.
• There are two different kinds of FPOs that companies can opt to issue – dilutive FPOs and non-dilutive FPOs.

ELM constantly experiments with new education methodologies and technologies to make financial education effective, affordable and accessible to all. Earlier in 2012, only the Promoters/Promoter Group Entities of Listed companies were allowed to act as sellers in order to achieve the Minimum Public Shareholding of 25%. To divest a promoter’s stake, you must have read that the company will reduce its stake via OFS or Offer for Sale.

• Although some research is still needed to understand the company’s history and performance, it’s generally easier to evaluate an FPO than an IPO.
• The company receives capital from the sale, which can be used for various purposes outlined in the offering.
• Because no new shares are created, the offering is not dilutive to existing shareholders, but the proceeds from the sale do not benefit the company in any way.
• As a result, they attract more and more retail investors, who show interest in having more stake in the companies at a cheaper cost.
• Investors should be cognizant of the reasons that a company has for a follow-on offering before putting their money into it.

As with any investment, due diligence is key to making informed decisions. In the case of the dilutive offering, the company’s board of directors agrees to increase the share float for the purpose of selling more equity in the company. This new inflow of cash might be used to pay off some debt or used for needed company expansion. When new shares are created and then sold by the company, the number of shares outstanding increases and this causes dilution of the earnings per share. Usually the gain of cash inflow from the sale is strategic and is considered positive for the longer-term goals of the company and its shareholders.