Follow-on Public Offer (FPO) is the issue of securities for public trading by a company whose shares are being traded on a stock exchange. Unlike an IPO, the company issuing the FPO is already listed on the stock exchange and later decides to offer equity to raise additional capital. Companies can make follow-on public offers to generate liquid assets and repay debt.
Types of FPOs
There are two types of FPOs:
Dilutive Follow-up Public Offer
Non-dilutive follow-up public offer
In a dilutive FPO, new shares are added to sell more equity and in a non-dilutive FPO, the shareholders sell the existing privately owned shares in the market. As a result, earnings per share (EPS) gets impacted in weaker FPOs as the total number of shares increases but the value of the company remains the same.
FPO vs IPO
In comparison, investing in an FPO is less risky than investing in an IPO. This is because the past performance of the company in the stock market is available when the FPO is issued. As a result of ‘reward for risk-taking behaviour’, the profit-earning potential of investing in FPOs is also lower as compared to IPOs.
How to invest?
The mode of applying for FPO is same as applying for IPO i.e. applying under Retail Individual Investor (RII) allotment. Any adult with PAN card and Demat account can start trading. Traders can buy shares of a company in the stock exchange where the company is listed through a broker or from one’s bank through an application supported by Blocked Accounts (ASBA) facility.
Investing between IPO and FPO depends on the financial goals and risk appetite of an individual. Each type of investment has its advantages and limitations. A fundamental understanding of the market and the company is important before making a decision.
obey mintjini For more such stories.
catch all business News, market news, today’s fresh news events and breaking news Updates on Live Mint. download mint news app To get daily market updates.