Follow on Public Offer is a method by the help of which shares are issued to the public by those companies which are enlisted and registered with the stock exchange. The FPO acts as a bidding platform for the companies to do their bit in selling shares.
The idea is to raise funds for the companies and usually in business, this happens through equity or loans and FPO provides a platform for the former. The shares are usually floated in the market to be sold for generating public contribution for the company.
The main aim of FPO is to facilitate public investment. The risks are lower and the nature of it is predictable. Moreover, after an initial public offering of shares, an additional issuance which is also known as a secondary offering, is the FPO.
Then again, the price in FPO is often fixed and the investors need to pay that amount and there are no more added charges for them to pay. The investors in FPO can agree to the price for buying it or bid for it.
Usually, an FPO remains open for three to four days a week. Hence FPO is quite a popular way to raise equity capital for the company or organization. Moreover, there are three types of FPO, and they are Dilutive Non-dilutive and At-the-Market-Offering
Types of FPO
- Dilutive FPO:
The dilutive FPO is the kind where new shares can be added and the non-dilutive kind is when shares can be sold publicly. The dilutive FPO comes into play when a company increases the number of shares. Moreover, the company issues shares to the public when they have to pay off a debt or for the creation of bigger funds. In these times, the company or the management takes the decision to issue a new set of shares in the market.
- Non-Dilutive FPO:
The non-dilutive is the kind when the shares are offered to the public by directors and big shareholders. The shareholding ownership pattern is usually changed through the FPO. The existing shareholders of a company issue shares for the public as offering to sell them in an FPO.
At-The-Market-Offering (ATM) is the kind of FPO where it enables a company for raising funds for the capital needed for it, as and when it is required. The issuance of shares can be stopped by the company according to their necessity, especially if the price of the shares is low on a day.ATM offering is also called controlled equity distribution.
An FPO is required because of the prices which are lower than the usual market price. This is how the company gets more subscribers for the shares. Then again, the investors are already aware of the company and its functions, operations, management, and business practices. Hence it becomes easy for them to invest. It has a much lower risk than IPO.
Moreover, the price of FPO is much lower when compared to other listed shares. Investors usually buy the shares at a discounted price and then sell them at the market at a higher price to earn more from it. Hence FPO is a good investment area if one is aware of the technicalities associated with it.