Context: Adani Enterprises recently said it has decided not to go ahead with its ₹20,000-crore follow-on public offer (FPO) and will return the proceeds to investors.
About Follow on Public Offering:
- FPO is a follow up to the initial public offering.
- It is also known as a follow-on public offer which is the issuance of shares after the company has been listed on the stock exchange.
- In other words, an FPO is an additional issuance of shares while an IPO is simply the first issuance.
- Companies usually announce FPOs to raise equity or reduce debt.
Types Of FPO
- Diluted FPO:
- There is dilution in the ownership of existing shareholders.
- Here, the company decides to issue new shares to the public which increases the total number of shares outstanding.
- When there is an increase in the number of shares, the ownership percentage of existing shares decreases since newly issued shares will also represent a certain proportion of ownership in the company.
- Non-Diluted FPO:
- There is no dilution in ownership of existing shareholders because no new shares are issued.
- The shares which are offered to the public are shares that are held by non-public shareholders.
- Usually, these shareholders are Promoters, Directors of the company, or Pre-IPO investors.
Difference between Initial Public O vs FPO
- Meaning: IPO is the first issuance of shares by a company while an FPO is the issuance of shares by a company so they can raise additional capital after its IPO.
- Price: In an IPO, the price is either fixed or variable as a range, while in an FPO the price is dependent upon the number of shares as they increase or decrease and is market-driven.
- Share Capital: In an IPO the share capital increases because the company decides to issue fresh capital to the public for its listing.
- Value: IPOs are oftentimes more expensive to carry out than FPOs.
- The reason FPOs are cheaper is that the value of the company listing its shares is getting diluted further.
- Risk: IPOs are considered to be riskier than FPOs.
- Status of the company: A company that is unlisted issues an IPO while a company that is already listed issues an FPO.
Previous Year Questions
Q.1) What is the importance of the term “Interest Coverage Ratio” of a firm in India?
- It helps in understanding the present risk of a firm that a bank is going to give a loan to.
- It helps in evaluating the emerging risk of a firm that a bank is going to give a loan to.
- The higher a borrowing firm’s level of Interest Coverage Ratio, the worse is its ability to service its debt.
Select the correct answer using the code given below:
- 1 and 2 only
- 2 only
- 1 and 3 only
- 1, 2 and 3
Q.2) Which of the following is issued by registered foreign portfolio investors to overseas investors who want to be part of the Indian stock market without registering themselves directly?
- Certificate of Deposit
- Commercial Paper
- Promissory Note
- Participatory Note
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