What is an FPO?
An FPO, or Follow-On Public Offering, is the process in which a publicly traded company issues additional shares to investors.
Why Do Companies Go for an FPO?
Companies conduct an FPO for various reasons:
- Capital Infusion: Additional funds help in business expansion, acquisitions, or research and development.
- Debt Reduction: Companies use FPO proceeds to pay off existing debt and improve financial stability.
- Increased Liquidity: More shares in the market can enhance stock liquidity, attracting a wider investor base.
- Strengthening Market Position: Companies may use FPOs to strengthen their financial standing and gain investor confidence.
Types of FPOs
There are two main types of Follow-On Public Offerings:
- Dilutive FPO: The company issues new shares, which increases the total number of outstanding shares and may dilute the earnings per share (EPS).
- Non-Dilutive FPO: In this case, existing shareholders, such as promoters or large investors, sell their shares to the public. The total number of shares in the market remains the same, but ownership changes.
Benefits of Investing in an FPO
Better Pricing: FPO shares are often offered at a discount to the prevailing market price, making them attractive for investors.
Established Track Record: Unlike IPOs, FPOs are conducted by companies with a market history, allowing investors to analyze past performance.
Lower Risk Compared to IPOs: Investors can evaluate financials, management performance, and business operations before investing.
Potential for Growth: FPO funds are often used for business expansion, which may lead to stock price appreciation over time.