In the stock market, an FPO, or Follow-on Public Offer, is a method by which companies already listed on a stock exchange raise additional capital by issuing new shares to the public. Unlike an Initial Public Offering (IPO), which is the first sale of stock by a company to the public, an FPO is conducted by companies that are already publicly traded.
Types of FPOs
There are two primary types of Follow-on Public Offers:
- Dilutive FPO: In a dilutive FPO, the company issues additional shares, which increases the total number of outstanding shares. This can dilute the ownership percentage of existing shareholders.
- Non-Dilutive FPO: In a non-dilutive FPO, existing shareholders, such as promoters or major investors, sell their shares to the public. The total number of shares remains the same, so there is no dilution of ownership.
Purpose of FPOs
Companies opt for an FPO for several reasons:
- Raising Capital: To fund expansion projects, pay off debt, or invest in new ventures.
- Improving Liquidity: To increase the number of shares available for trading in the market, thereby improving liquidity.
- Strengthening Balance Sheet: To bolster the company’s financial health by increasing its equity base.
Process of an FPO
The process of conducting an FPO involves several steps:
- Board Approval: The company’s board of directors must approve the FPO plan.
- Regulatory Approval: The company must obtain approval from regulatory bodies like the Securities and Exchange Board of India (SEBI).
- Filing with SEBI: The company files a draft offer document with SEBI, detailing the purpose, financials, and terms of the FPO.
- Book Building: The company conducts a book-building process to determine the price band for the FPO. Investors bid within this price range.
- Pricing and Allocation: The final issue price is determined based on investor demand, and shares are allocated to successful bidders.
- Listing: The newly issued shares are listed on the stock exchange and become available for trading.
Benefits of FPOs
FPOs offer several benefits to companies and investors:
- Capital for Growth: Provides companies with the necessary funds to pursue growth opportunities.
- Increased Visibility: Enhances the company’s visibility and credibility in the market.
- Investment Opportunity: Offers investors an opportunity to buy shares of established companies at a potentially discounted price.
Risks and Considerations
While FPOs have benefits, they also come with certain risks and considerations:
- Dilution of Shares: In a dilutive FPO, the value of existing shares may decrease due to the increased number of outstanding shares.
- Market Perception: The market’s perception of the need for additional funds may impact the company’s stock price.
- Regulatory Compliance: Companies must comply with stringent regulatory requirements, which can be time-consuming and costly.
Examples of FPOs in India
Several notable Indian companies have conducted successful FPOs:
- State Bank of India (SBI): State Bank of India is One of the largest FPOs in Indian history, conducted to raise funds for growth and expansion.
- Coal India Limited: Coal India Limited Conducted an FPO to divest the government’s stake and raise capital for modernization.
Conclusion
I think we get answer in above details regarding What is FPO in stock market ?
An FPO is a significant financial tool for companies already listed on a stock exchange to raise additional capital. It offers benefits like capital infusion and increased liquidity but also comes with risks such as share dilution. Understanding the mechanics and implications of an FPO can help investors make informed decisions when participating in these offerings. Whether you are a seasoned investor or a novice, staying informed about FPOs can enhance your investment strategy and market knowledge.