[ecis2016.org] Here’s all about FPOs, the second innings of the corporates.
What are FPOs?
Follow-on Public Offers or FPOs, also known as secondary offerings, are issued by a stock exchange company, listed to reduce debt. FPOs are not to be confused with IPOs (Initial Public Offers); there’s a difference between their listing of shares and timing.
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For an FPO to exist, the company needs to be listed on a recognised Stock Exchange with its IPO. An IPO listing is recognised when a private firm goes public with the selling of its shares. An FPO listing comes after the listing of a company with a stock exchange, with its IPO in the market.
A deeper insight on FPOs
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During the listing of a company, an IPO is launched to raise capital for its functioning, with a promise to return the public investments with profits. The shares on sale may be either old or new.
Thereby, it gives rise to two different types of shares:
Dilutive/new shares
A company when predominantly wanting to reduce its debt, increases the number of shares. It tends to affect the EPS (Earnings Per Share), altering the financial structure of the company.
Non-dilutive shares
There is no issuance of any new shares and can be called as secondary offerings. The old, private shares go public in this case. It does not affect the EPS though.
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An FPO is primarily dependent on the market prices, i.e., at-the-market offerings. A company may step back on the day of the issuance of shares, if the rates of the shares are not as required, allowing them to wait for the favourable rates of the shares. This is in contrast with an IPO price, which comes with an already-set limits of price range.
Some take aways from an FPO
For an FPO, the share prices are already lower than the existing listed shares in the market. Gradually, the share’s market price comes down to the same as that of an issue price of an FPO.
Although less profitable than an IPO, an FPO has been considered to be a safer bet for new and individual investors. A company is at the stage of stability till the time of its FPO listing. The ones with extensive knowledge about the market and an appetite for taking risks can also invest in an IPO.
FAQs
Why do firms issue FPOs, even after the IPO listing?
The purpose of an FPO is to reduce a company’s debt by increasing the number of shares. This is done to decrease the EPS.
Do I need to wait to sell an FPO share?
No. All one needs to do is to wait till their DEMAT account demarcates the allotment of an FPO.
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Source: https://ecis2016.org
Category: Must Knows
