In the dynamic world of stock markets, companies often look for ways to expand, pay down debt, or raise capital for other financial needs. Option is to go through the public offering “FPO”. This article explores the concept of FPOs, their types and why firms choose FPOs.

Define FPO in share market

What is FPO in share market? A follow-on public offer “FPO” occurs when a company already listed on an exchange offers new shares to investors. FPO meaning in share market is subsequent public offering (FPO) is a process in which a publicly traded company issues new shares to the public after its initial public offering (IPO) and the main objective of an  follow-on public offer FPO in the stock market in general is to conduct a public offering to raise capital through the issue of new shares or the acquisition of existing shares by the promoters. Unlike an IPO, meaning of fpo in share market is  where a company goes public for the first time, an FPO involves an existing listed company.  

Why do companies choose FPOs?

Companies choose FPOs for several reasons:

• Raising additional capital: Companies often need large amounts of cash to expand operations, develop new projects, or pay down debt. FPOs provide a way to raise sufficient capital without incurring debt.
• Improved liquidity: By issuing more shares, companies can increase their market capitalization, making it easier for investors to buy shares have been sold.
• Ownership diversity: FPOs can help reduce ownership concentration by allowing new investors to participate, thus broadening the shareholder base.

The FPO process

The FPO process is similar to an IPO but generally less scrutiny as the company is already registered and has records. The steps usually include:

• Filing of Prospectus: The company files a prospectus with the Securities Exchange Board of India (SEBI) or the regulatory authority concerned, and detailing the purpose of the FPO, the number of shares issued & the list price of  the FPO.

• Pricing: The company provides a price list for the FPO, which can be wholesale, discounted, or equal to the current market price.

• Investments: Investors create shares at the price list, indicating the quantity and price they are willing to pay.

• Shares: Shares are distributed to investors on the basis of demand. For overorders, the cash award is the right one.

• Registration: New shares are listed on stock exchanges and start trading.

The impact of the FPO on shareholders and the market

•  Existing shareholders: In a consolidated FPO, as earnings per share (EPS) falls, the value of existing shares may be reduced. However, if the capital raised is used effectively for development, the long-term impact can be positive.
• New Investment: FPOs often offer new investors the opportunity to buy shares at potentially lower prices than the current market price, especially if they are offered at a discount.
• Market sentiment: The market reaction to the FPO announcement may be mixed. Well-timed and well-communicated FPOs can boost investor confidence, while poor reception of FPOs can lead to lower stock prices.
  

Conclusion

Follow-on Public Offerings play a crucial role in the financial strategies of companies, providing them with the means to raise capital for growth and other purposes. For investors, FPOs offer a chance to invest in a company with an established track record, often at an attractive price. However, like any investment, it's essential to analyze the company's prospects and the purpose of the FPO before making an investment decision.

Read Also - FPO (Follow-on Public Offer) Benefits