Capital is the backbone of every business since they need it for sustaining and growing the business. While an Initial Public Offering or IPO is a popular way to raise resources, sometimes, it may not be enough. In this case, Follow-on Public Offers or FPOs can help.

 

Read on to learn what Follow-on Public Offer is, the various types, benefits, and more. 

What is a Follow-on Public Offer?

A Follow-on Public Offer or an FPO refers to the method through which a company that is already listed on the stock exchange can secure funds from the general public. Much like an Initial Public Offering (IPO), it also requires investors to have a Demat account

 

However, the two differ since an IPO involves a company securing funds from the public for the very first time. Following this, the IPO listing procedure is completed. 

Types of Follow-on Public Offer

Here are the different types of FPOs that you need to know about.

1. Dilutive Follow on Public Offer

  • Here, the company introduces extra shares to generate capital and presents these extra shares to the market.

  • With the rise in the number of shares, the earnings per share, or EPS, experiences a decline. 

  • The funds raised through a Dilutive Follow-on Public Offer are generally utilised towards modifying a company's capital arrangement.

  • The additional funds raised through the process are advantageous for the company's stock performance. 

 

2. Non-Dilutive Follow on Public Offer

  • Here, the current owners of private shares introduce previously issued shares to the market with the intention of selling them. 

  • No fresh shares are generated in this type of offer, hence, the Earning Per Share or EPS stay the same. 

  • The capital generated is directed towards the shareholders, who make the shares available in the open market.

Benefits of Follow-on Public Offer

Follow-on Public Offer is associated with various benefits for both the issuing company and the investor. Here are some of the benefits.

1. Helps Generate Capital

One of the primary reasons why companies introduce their Initial Public Offerings and Follow-on Public Offerings is to bolster their capital reserves. They utilise these funds towards new processes, with the intention of sustaining and growing the business.

2. Increases Liquidity

FPOs help in increasing the liquidity of the company's shares. This is due to the expansion of their availability to the general public. The elevated liquidity facilitates the smooth buying and selling of shares. 

3. Allows Diversification

An FPO introduces the shares to a new set of customers. Hence, diversifying the company's investors and strengthening the company's equity foundation.

4. Helps Pay-Off Debts

The capital generated can be utilised towards various financial needs of the company, including settling the debt obligations. For many companies, such liabilities can be weights that slow down progress. 

5. Enhances Market Reputation

Having a positive and successful Follow-on Public Offer has the potential to enhance the reputation of the company with the general public. It serves as a testament to investors' confidence in the company's future performance.

How Does a Follow on Public Offer Work?

Here is the process of an FPO in the share market.

  • Step 1: Appointment: The initial step in the process includes seeking intermediaries such as underwriters and investment banks.
  • Step 2: Documentation: The next step is drafting and submitting an offering document to the Securities and Exchange Board of India (SEBI). It includes detailed information regarding the FPO, including the size.
  • Step 3: Pricing: This is an important step in the process, where the issuing company establishes a per-share price for the FPO. This price is the rate at which investors can apply for the shares.
  • Step 4: Bidding: After setting the price, the issuing company initiates the Follow on Public Offer for a designated time period. The investors need to submit their bids during this opening and closing period. Once the bidding time frame is completed, the FPO gets closed.
  • Step 5: Allotment and Listing: Post the bidding period, the issuing company allocates shares to participating investors at the final offer price. Then, these shares get introduced on the stock exchanges.

 

A Follow-on Public Offer can prove advantageous for investors as well as businesses. Remember, like any investment, FPOs also demand adequate time and consideration. Before investing, you need to research the risks associated and the company's past performance.

 

Explore various options for equity investments on Bajaj Markets and get the opportunity to generate great returns with a lower level of risk.

FAQs on Follow on Public Offer

How is Follow on Public Offer different from Initial Public Offer?

An Initial Public Offering (IPO) is when companies that are not yet listed on the stock exchange introduce their shares for the very first time. On the other hand, a Follow-on Public Offer (FPO), as the same suggests, comes after an IPO. It is when companies that are already listed on the exchanges reintroduce their shares to generate capital.

Is there any other name for Follow on Public Offer?

Yes, a Follow-on Public Offer, or FPO, is also called a secondary offering.

Are Follow on Public Offer investments safe?

This investment instrument can be safe for some investors, since it is a rather risky option. Both types of FPOs have positive and negative implications, and it depends on your financial goals and investing strategy.

What are some companies offering FPOs in India?

Companies with FPOs in India include Yes Bank, Ruchi Soya, ITI, and Madhav Copper, among others.

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