FOLLOW ON PUBLIC OFFER (FPO)
1.Context
Adani Enterprises said on February 1 that it has cancelled its Follow-On Public Offering (FPO) and will return money to its investors amid ongoing controversy after American short seller, Hindenburg Research, accused the company of using tax havens and flagged debt concerns in a report
2.What is FPO
- Follow on public offer, also called an FPO, is a way through which companies that are listed on a stock exchange issue fresh shares to the public. FPO is different from an IPO, or initial public offering, as through the latter, companies offer their shares to the public for the first time, before it is listed on a stock exchange
- A company generally issues FPO when it wants to raise more money by issuing new shares to pay its debts, finance new projects or for its corporate expenses among other things
- The issue price for an FPO is generally lower than the current market share price of the company
- By FPO, a company also increases their equity base, giving investors more opportunities to invest in the firm
Through an FPO, existing shareholders can increase their stake in the company as well as new investors can buy shares at a lower price
3.Types of FPO
There are two types of FPOs
3.1.Diluted FPO:
In diluted follow-on offering, the new offer of shares increases the outstanding shares of the company
A new set of shares are issued to the public through diluted FPO to raise the capital for funding new projects, and activities or for paying debts
The funds raised during an FPO are most frequently allocated to reduce debt or change a company's capital structure. The infusion of cash is good for the long-term outlook of the company, and thus, it is also good for its shares.
3.2.Non-Diluted FPO:
Non-diluted follow-on offerings are issued when existing shareholders of the company sell their stocks to the public. Non-Diluted FPOs are also known as secondary market offerings
Non-Diluted FPOs do not benefit the company in terms of raising more capital as these are generally issued to change the shareholding ownership pattern
Cash proceeds from non-diluted sales go directly to the shareholders placing the stock into the open market.
Initial public offering or IPO is the first time a company goes public. When we say a company has gone public, it means it has offered its shares to the public at large and is ready to get listed at the stock exchanges of the country
We have two exchanges: Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). The first time a company gets listed at BSE, NSE, or both and offers its shares to be publicly traded the offering is called an IPO
Source: Business Standard, investopedia, Groww
