What is an FPO (Follow-on Public Offering)?
A Follow-on Public Offering (FPO) is a method by which
companies that are already listed on the stock exchange issue additional shares
to the public. This is different from an Initial Public Offering (IPO), where a
company offers its shares to the public for the first time.
Types
of FPO
There are two main types of FPOs: Dilutive and
Non-dilutive.
- Dilutive FPO
- Definition: In a dilutive FPO, the company
issues new shares, increasing the total number of outstanding shares.
- Purpose: Companies typically conduct
dilutive FPOs to raise funds for expansion or to pay off debts.
- Example: An example of a dilutive FPO
in India is ITI Ltd. In early 2020, ITI, a telecom manufacturing company,
offered 18 crore new shares priced between Rs 71 to 77 per share. This
was aimed at increasing public shareholding and reducing the government’s
stake, which was over 85%. However, ITI later withdrew the FPO due to
unfavourable market conditions.
- Non-dilutive FPO
- Definition: In a non-dilutive FPO, the
company does not issue new shares. Instead, existing shareholders, such
as directors or large investors, sell their shares to the public.
- Purpose: Non-dilutive FPOs do not
increase the total number of shares or provide new capital to the
company. They are usually used to change the company's ownership
structure.
- Benefits: While non-dilutive FPOs do not
bring additional funds to the company, they can help adjust the
shareholding pattern.
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