What is an FPO

FPO (Follow-on Public Offering) is a process where a company, already listed on a stock exchange after its IPO (Initial Public Offering), issues additional shares to raise capital. Think of it as a company going back to the public market to get more funding after it has already become a publicly traded entity.

Are you curious about what FPO and IPO are? This blog dives into the essentials of what is a Follow-on Public Offer (FPO), explains how it’s different from an IPO, and discusses why companies choose this method to raise capital.

Introduction to Follow-on Public Offering (FPO)

• A follow-on public offer (FPO) is when a company that’s already listed on the stock market decides to issue more shares to the public.
• This move is typically aimed at raising funds for things like expansion, paying down debt, or meeting other business needs.
• Many people are curious about what a follow-on public offer is and how it differs from an initial public offering (IPO).
• It’s worth noting that a follow-on public offer can also influence share prices and attract investor interest. In this blog, we’ll break it all down in straightforward terms.

What Does FPO Stand For?

• FPO stands for Follow-on Public Offer.
  
• This is when a company that’s already listed on the stock exchange decides to offer more shares to the public after its initial public offering (IPO).
  
• The concept behind a follow-on public offer is pretty straightforward: it’s a way for companies to raise additional funds. In India, many businesses use follow-on public offers to finance their growth plans, a process that highlights a core function of what is investment banking.

Why Do Companies Launch an FPO?

• Companies often turn to a Follow-On Public Offer (FPO) to raise additional funds after they’ve gone public.
• This strategy can help finance new projects, pay off existing loans, or support business growth. Essentially, a follow-on public offer gives companies a valuable second opportunity to access the market.
• In India, these offers also play a role in enhancing public shareholding. When executed at the right moment, a follow-on public offer in India can be a savvy move for businesses.
• The follow-on public offering meaning lies in raising additional capital while already being listed.

How Does an FPO Work?

• Ever wondered what is follow on public offer and how it actually works? It’s pretty straightforward.
• A company that’s already listed decides to sell more shares to the public.
• These are usually offered at a fixed or discounted price. People like you and me can invest in them.
• The money raised helps the company grow or pay off debt.
• The follow-on public offer meaning is really just about getting extra funds after an IPO.
• A good follow-on public offer example in India would be when public sector companies sell more shares to meet SEBI rules.

Step-by-Step FPO Process

• Let’s break down how a follow-on public offer actually works.

• First, the company decides it needs more funds. It gets approval from its board and shareholders.

• Then, it files the necessary documents with the stock exchange and market regulator.

• Next comes setting the price and number of shares. After that, the FPO is announced to the public.

• Investors can then apply to buy the shares. Once the offer closes, shares are allotted and listed. The funds raised are used for business needs.

• A common follow-on public offer example is when a government company in India offers more shares to the public.

• That’s the basic follow-on public offer meaning. The follow-on public offer in India follows SEBI guidelines to ensure fair play.

Role of SEBI and Regulatory Framework

• SEBI plays a key role in making sure FPOs are fair and transparent. It sets the rules companies must follow before offering more shares.
• This includes proper disclosures, pricing, and timelines. If you’re wondering what is follow on public offer, it’s simply when a listed company issues more shares to raise funds.
• In India, SEBI ensures that investors get clear and honest information. The follow-on public offer meaning also includes protecting investor rights and keeping the market stable
  
• A well-known follow-on public offer example is when government firms offer more shares to meet public shareholding rules.
• The follow-on public offer in India is closely watched by SEBI to maintain trust in the system.

Types of FPO

• There are two common types of FPOs: dilutive and non-dilutive.
• They might sound technical, but the idea is simple. Each one works a bit differently depending on what the company needs.
• If you’re curious about what is follow-on public offer or what is FPO in share market, understanding these types is a great place to start.
• You’ll often see a follow-on public offer example linked to one of these two.

Dilutive FPO

• In a dilutive FPO, the company offers new shares to the public.
• This adds more shares into the market, so the value of each existing share might drop a little.
• It’s a common way for businesses to raise money when they need funds to grow or manage expenses. It’s simple, and it works.

Non-Dilutive FPO

• This one’s a little different. In a non-dilutive FPO, the company isn’t offering new shares.
• Instead, existing shareholders are selling the ones they already own.
• The company doesn’t raise money from this, but it can still help improve public shareholding.
• Think of it more as a change in who holds the shares rather than how many exist.

FPO vs IPO: Key Differences

1. An IPO is a company’s first time offering shares to the public. It’s how a private company becomes listed on the stock exchange. An FPO happens later, once the company is already listed.
2. In an IPO, the public gets access to the company’s shares for the first time. In an FPO, the company is simply offering more shares, either new or existing ones.
3. The goal of an IPO is to raise capital and go public. The goal of an FPO is usually to bring in extra funds or meet listing requirements.
4. Another key difference is risk. IPOs can be riskier because the company is new to the market. FPOs often feel more stable, since the company is already listed and has some market history.

So while both involve public investment, they happen at different stages and serve different purposes.

Source – FPO vs IPO 

Purpose and Capital Raising

• The main reason companies choose an FPO is to raise more money. A business might need funds to grow, start a new project, or pay off loans. Since the company is already listed, an FPO is often a quicker and trusted way to get those funds.
• It also helps improve public shareholding, which is sometimes required by market rules. By offering more shares, the company can bring in new investors and increase activity in the market.
• For investors, an FPO feels less risky than an IPO because the company already has a track record. People can check past performance before deciding to invest.
• So, the purpose of an FPO goes beyond just raising money. It helps build trust, attract more investors, and strengthen the company’s place in the market. When timed well, it can be a smart and effective move.

Impact on Stock Price and Ownership

• An FPO can affect a company’s share price. If new shares are added, prices might dip slightly due to more supply.
• Existing shareholders could see their ownership get a bit diluted. But if the funds are used well, it can lead to long-term growth and improved value.

Pros and Cons of Investing in an FPO

• FPOs can be a great chance to invest in companies you already know. Since they’re listed, you can look at their past performance before making a decision. Prices are often offered at a slight discount, which can be tempting for investors.
• Take Coal India, for example. Its FPO gave retail investors a discount, and many saw it as a good opportunity.
• But there are downsides too. When more shares are added, it can bring the price down for a while. It also slightly reduces the ownership percentage of existing shareholders.
• If you’re still wondering what is followed on public offer, it’s just when listed companies offer more shares to the public.
• A follow-on public offer in India is quite common and often used to meet regulations or raise extra funds. Always read the details before jumping in.

Benefits for Investors

• FPOs let you invest in companies that are already listed, so there’s some history to look at.
• You’re not going in blind like with some IPOs. Shares are often offered at a lower price, which can be a good deal.
• It’s also a chance to buy into a business you already trust. For many investors, that feels a lot safer.

Risks and Considerations

• FPOs can seem like a good deal, but it’s important to pause and think.
• When more shares are added, the price can drop a little. Your share in the company might feel a bit smaller too.
• Not every FPO is a win, so it helps to know why the company needs the money. A bit of homework can go a long way before you invest.

Final Thoughts: Should You Consider Investing in an FPO?

• At the end of the day, it depends on your comfort level. If you like knowing a bit about the company before investing, an FPO gives you that.
• You’re not betting on something brand new. The share price is often a little cheaper too, which is a bonus.
• Just make sure you understand what is follow-on public offer and why the company is raising money. A bit of thought now can help you make the right call later. Learn more with an Investment Banking Certification.

FAQs on What is FPO

What is the full form of FPO in finance?

It’s Follow on Public Offer. It just means a company that’s already listed is offering more shares to the public.

How is an FPO different from an IPO?

An IPO is the first time a company sells shares to the public. An FPO happens later, once it’s already on the market.

Is investing in an FPO safe for retail investors?

It can be, especially if the company’s doing well. Still, it’s always a good idea to look into the details first.

Why do companies prefer FPO over other fundraising methods?

It’s a simple way to bring in money without taking a loan. Plus, it helps get more people involved in owning the company.

Partham Barot is an ACCA-certified professional. showcasing his expertise in finance and accountancy. he’s revolutionising education by focusing on practical, real-world skills. Partham’s achievements underscore his commitment to elevating educational standards and empowering the next generation of professionals.