What is Follow on Public Offer (FPO)?

Feb. 6, 2023

Adani Enterprises recently decided to call off its ₹20,000 crore follow-on public offer and return the money it had collected from investors.

About Follow on Public Offer (FPO):

  • What is it? FPO is a process wherein a company already listed on a stock exchange issues new shares to existing investors or shareholders.
  • It is also known as a secondary offering. 
  • Purpose:  
    • FPO allows a company to raise additional funds through the issuance of new shares. 
    • Companies use FPOs to diversify their equity base and raise capital for business. 
    • This capital can be used for multiple purposes, such as to meet the company's expenses, business expansion, debt reduction, etc.
  • Types of FPO:
    • Dilutive FPO:
      • It is when a company issues additional shares and offers them to the public.
      • It increases the number of outstanding shares of the company.
      • As the number of shares increase, the earnings per share (EPS) decrease.
      • Funds raised from such an FPO are allocated for expansion activities or to pay debts.
    • Non-dilutive FPO:
      • It is when shares that are already in existence are issued to the public.
      • It is when existing shareholders, like directors or founders, sell their shares and offer them to the public.
      • Non-dilutive FPOs are used to change the shareholding ownership.
    • At-the-market offering:
      • It is a type of FPO in which a company offers secondary public shares on any given day to raise capital, mostly depending on the prevailing market price.
      • An at-the-market (ATM) offering gives the issuing company the ability to raise capital as needed.

What is Initial Public Offer (IPO)?

  • When a private company first sells shares of stock to the public, this process is known as an initial public offering (IPO). 
  • An IPO means that a company's ownership is transitioning from private ownership to public ownership.