Follow on Public Offering

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.

Source: BusinessToday

Previous Year Questions

Q.1) What is the importance of the term “Interest Coverage Ratio” of a firm in India?

1. It helps in understanding the present risk of a firm that a bank is going to give a loan to.
2. It helps in evaluating the emerging risk of a firm that a bank is going to give a loan to.
3. 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. 1 and 2 only
2. 2 only
3. 1 and 3 only
4. 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?

1. Certificate of Deposit
2. Commercial Paper
3. Promissory Note
4. Participatory Note