Follow-on Public Offer, a term applicable for companies that are already listed on the stock exchange. It is process by which additional shares are issued to investors by a company that is already listed. It is usually done just after the IPO process is completed. If you want to know more on what is an IPO and the steps involved in an IPO process, refer to our article on What is an IPO and the steps involved.
Why FPO ?
The purpose of FPO is to raise equity or reduce debt. Company issues these after it is listed on the exchange. The process helps promoters sell their existing shareholdings. Mutual Funds, FIIs, Individuals, Qualified Institutional Buyers and Insurance companies are the ones who bid for. a FPO.
Types of FPO
There are two types of FPO:
Dilutive FPO: As the name suggests, the objective of this type of FPO is to dilute the shareholding of the company. This increases the number of outstanding shares. The purpose is to fund an expansion or pay debt.
Non-Dilutive FPO: It acts opposite to what dilutive IPO does. It does not dilute the shareholding, rather sells the existing shares of bigger stakeholders to the public.
How does it work ?
FPO issue price is set lower than the market price. This is done to increase the purchase of the shares. Eventually, the market price falls and levels up with the FPO price.
Advantages of FPO
FPO has its own set of advantages which make it less riskier for the investor to put his money.
You have a fair view of the performance of the company in the stock market. This includes both quantitative and qualitative data.
The change to get advantage of an arbitrage is high. You can buy at discounted FPO price and sell at the market price.
You don't have to trust an unlisted company, which hold good in case of IPO.
Difference between IPO and FPO
IPO is the initial set of shares offered by the company when it is listed, whereas FPO is the issuance of shares by an already listed company.
IPO has a fixed/variable price band, whereas FPO is dependent on the market.
IPO is expensive as compared to FPO.
IPO is riskier as compared to FPO.
This is a detailed article on what is a FPO and how is it different from an IPO. Start your investment journey using the pointers listed above.
If you want to learn stock trading in depth, visit the product site to check out the best packages on financial trading.
If you want to read about investing on stocks, visit our website.
Subscribe to our Youtube channel for videos on stock trading.
Follow our GROWW MACHINE Facebook page for updates on stock trading.
Comments