FPO Full Form

The FPO stands for Follow-on Public Offer. Companies that usually handle their finances through business revenue and stock investments. However, additional funds may be raised, if required, by selling shares to the public. The process is called an FPO (follow-on public offer), if the company is already listed on the stock exchange.

An FPO helps in business expansion, financial management, and debt reduction. The number and type of shareholders also increase through the process. Hence, it increases the public shareholding of the company and boosts its brand image.

This blog provides a detailed overview of FPOs and their process. Read on to explore the FPO meaning in share market , its pros, cons, and application steps.

FPO Full Form and Significance

Follow on Public Offering is the FPO full form in the share market and in banking - it is a process of acquiring funds or raising equity to help companies with existing financial problems or for financing a project.

FPO Meaning

An FPO is raised after an organization is established on the stock market. The company issuing the stock receives the proceedings of the sale. The process helps the company professionals collect funds and assess their investment potential.

Collecting funds via FPO is convenient if the company has a credible stock market performance. Investors might be interested in buying the company shares as they trust the firm.

In addition, issuing an FPO increases the liquidity of shares for a particular company. Investors can choose wisely as more company shares are available in the market.

So, releasing an FPO helps improve the company’s visibility in the stock market. New investors can buy stakes in the company, becoming a part of the organization.

Types of FPOs

Below are the differences between Various types of FPO (Follow on public offering) in the share Market.

Diluted FPO

In this type of FPO, the company releases new shares for the public, diluting the existing stakeholder ownership. The ownership percentage decreases for shareholders and earnings for each share.

However, the number of shares available for investment increases. These shares also depict a specific ownership proportion of the firm.

Also, a diluted FPO is used to quickly collect a large proportion of funds. It can help to clear off debts and strengthen finances effectively.

Non-Diluted FPO

Non-diluted FPO does not involve issuing any new shares to the public. Existing shares held by stakeholders, founders, employees and early investors are considered. So, the stakeholder ownership is not diluted.

The ownership percentage and the shareholder valuation do not change when a share is sold. The earnings per share also do not decrease. Hence, this investment option helps companies modify the ownership pattern of shareholders.

Unlike a diluted FPO, the number of shares does not increase or decrease as existing shares are utilized. The cash proceedings from the sale go to the shareholders who offer the most significant proportion of their shares.

At-the-Market FPO (ATM)

It is an FPO that allows organisations to raise funds according to the real-time performance of their shares. For instance, if the company experiences a sudden market crash, it may pull some shares from the offering. Or, if the firm doesn't find the stock price worthwhile, they can stop sharing the stocks.

Plus, At-the-Market offerings are less time-consuming and expensive, as the associated paperwork is less than other FPOs.

Advantages and Disadvantages of FPO

An FPO helps companies overcome major financial crises and stabilize their financial operations. Here are some of the other advantages of an FPO.

Advantages of An FPO

Boosts Market Reputation
FPOs can improve a company's market potential and reputation. Company owners demonstrate their confidence in the organization's growth through this process. It also shows how the company is improving its finances for future expansion.

For example, Adani Group released an FPO worth INR 20,000 crores with a price band of INR 3,112-3,276 per share. The company was confident about its financial future, so its FPO value was high.

Improving Awareness and Liquidity
Organisations offering their shares to the public automatically improves their brand awareness. The process notifies investors about the company's reputation and capital.

All this increases the liquidity of the company shares, making it convenient for investors to purchase and sell shares.

Better Debt-to-Value Ratio
As FPOs assist companies enhance their financial condition, they get rid of debt conveniently. It improves the debt-to-value ratio of the firm, which is essential for its market reputation.

Disadvantages of FPO

One of the few drawbacks of FPO is their ownership dilution which can reduce shareholder ownership. It negatively impacts the ownership percentage, which may discourage the stakeholders. Other disadvantages of FPO include –

• Some investors might take the reduction in the earnings per share negatively
• ATM offerings can create market volatility that can negatively affect share prices
  

How to Apply for FPO?

You must follow steps similar to an IPO application to apply for an FPO. You have to invest under the Retail Individual Investors allocation. The basic requirements for the application are:

• The applicant must be above 18 years
• A valid PAN or Aadhar card is needed
• A bank account
• A trading account and a Demat account

You can check and buy shares on the stock exchange where the shares are listed. You can apply through your broker's online platform or Application Supported by Blocked Account.

Wrapping Up

By now, you must have understood what is FPO in share market. Retail investors, insurance companies, qualified institutional buyers and mutual funds are also eligible for an FPO.

Ensure understanding of associated processes, legal expenses and required paperwork. Also, carefully analyse the share, the company's past stock performance and market reputation.

Choose a reliable broker like Choice India for conducting FPO-related transactions seamlessly. They provide a hassle-free process for opening a Demat account, FPO application and buying shares. Enjoy free AMC for the first year and affordable brokerage charges.

FAQ

Is there any Difference between IPO vs FPO?

Yes, there is a difference between IPO and FPO is that IPO is the initial public offering that is done by the company for the first time in the market whereas FPO is a follow-on public offering used to issue additional shares after the company is already publicly trading in the share market.

Should you invest in the FPO?

FPO is added to the company expansion before it is done by IPO so you know the strengths and weakness of the company so you can easily apply for the FPO after analysing the company as it is less risky as compared to the IPO.