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.
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.
Here are the different types of FPOs that you need to know about.
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.
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.
Follow-on Public Offer is associated with various benefits for both the issuing company and the investor. Here are some of the benefits.
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.
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.
An FPO introduces the shares to a new set of customers. Hence, diversifying the company's investors and strengthening the company's equity foundation.
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.
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.
Here is the process of an FPO in the share market.
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.
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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.
Yes, a Follow-on Public Offer, or FPO, is also called a secondary offering.
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.
Companies with FPOs in India include Yes Bank, Ruchi Soya, ITI, and Madhav Copper, among others.