Follow-on Public Offer(FPO)

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    • Recently, Adani Enterprises canceled its Rs 20,000 crore Follow-on Public Offer.
      • It came after the shares of the firm declined following allegations of accounting fraud by US short-seller Hindenburg Research.

    What is a Follow-on Public Offering (FPO)?

    • A Follow-on Public Offering (FPO) is the issuance of shares to investors by a company listed on a stock exchange. 
    • FPOs are also known as secondary offerings.
    • Companies may use an FPO to reduce debt or raise more capital for expansion.
    • They typically occur after the company has completed an initial public offering (IPO) to make its shares available to the public.

    Types of FPO’S

    • Dilutive FPO:
    • This is the process where the company issues additional fresh shares to the public to raise capital. 
    • It results in increasing the company’s total outstanding shares, decreasing the Earnings Per Share (EPS).
    • Non-Dilutive FPO:
      •  A non-diluted FPO is when the company’s largest shareholders, such as the founders or board of directors, offer the shares they hold privately to the general public. 
      • Unlike a diluted IPO, this method does not increase or decrease the company’s number of shares. 

    FPO vs IPO

    • 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.
    • Issuance: The process for carrying out an FPO is similar to that of an IPO. 

                However, the FPO process is more cost-effective when compared to an IPO.

    • Risk factor: Compared to FPO, the risk factors involved while investing in an IPO are far higher. 

    Source:TOI