Follow-on Public Offer (FPO) is the issuance of securities for public trading by a company whose shares are being traded in a stock exchange. Unlike in an IPO, the company that releases an FPO is already listed on a stock exchange and later decides to offer equity to raise additional capital. Companies may make a Follow-on Public Offer to generate liquid assets and pay off debt.
Types of FPO
There are two types of FPOs:
- Dilutive follow-up public offer
- Non-dilutive follow-up public offer
In dilutive FPO, new shares are added to sell more equity and in non-dilutive FPO, stockholders sell the existing privately-owned shares in the market. Consequently, earnings per share (EPS) gets impacted in dilutive FPOs as the total number of shares increase but the value of the company remains the same.
FPO vs IPO
When compared, investing in FPO is less risky than investing in IPO. This is because data of the past performance of the company in the share market is available when FPO is released. As a consequence of ‘reward for risk-taking behavior’, the profit-earning probability of investment is also less in an FPO than in an IPO.
How to invest?
The method to apply for FPO is the same as applying for an IPO i.e. by applying under Retail Individual Investors (RIIs) allocation. Any adult with a 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 through an Application Supported by Blocked Account (ASBA) facility from one’s bank.
Choosing to invest between IPO and FPO depends on the financial goals and risk appetite of an individual. Each type of investment has its own advantages and limitations. A fundamental understanding of the market and the company is vital before making a decision.
