The basic difference between Initial Public Offer (IPO) and Follow on Public Offer (FPO) is as the names suggest IPO is for the companies which have not listed on an exchange and FPO is for the companies which have already listed on exchange but want to raise funds by issuing some more equity shares.
Companies usually go to debt market for raising their short term needs. Either they issue bonds or get loans. But if they have massive expansion plans they may not raise sufficient funds in the debt market and even if they could it costs more. Companies come up with follow on offer to restructure their business or to raise funds for new business or to expand the existing business.
Similar to an IPO a price band is fixed (usually with the help of Investment banks) for the issue and interested investors can apply for it. Unlike the corporate actions (such as bonus, rights issue which are applicable only to the existing stake holders) FPO is open to all investors. The price band for the FPO depends on the market value of the existing company shares and the reason for raising funds.
In an FPO shares are issued in any of the ways listed below.
1. Promoters dilute their stake by offering some of their shares to the public.
2. Company issue fresh shares.
3. A combination of the above two approaches.
Sathish Emmadi
Sathish Emmadi is a co-founder & editor at Lastbull.com. He is presently working in IT for one of the world’s top mutual fund companies. Handled multiple projects in BFSI (Banking,Financial Services and Insurance) domain. An Engineering Graduate from NITW.
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{ 47 comments… read them below or add one }
Very well explained. Thanks
Hitherto, I’m really confusion between these terms. But this neat explanation clarified me
Thanks it was very well defined!
Thank for kind cooperation.
How do we differentiate between Rights issue and FPO ?…..
Can any 1 let me know the listing process of FMPS by mutual funds on NSE?
WHAT IS fully and partly convertible debentures?WHAT IS QIP?
thanks ,,, i got my answer,.
thanks, some more details could have been included
fine explanation.
WHAT IS ELM?
Hi Prajna,
ELM is Extreme Loss Margin. Here are the 2 links which will provide you more information.
http://lastbull.com/nse-quotes-%E2%80%93-extreme-loss-rate/
http://lastbull.com/nse-quotes-%E2%80%93-different-types-of-marginsvolatility/
thank It was Very well difine.
Your elucidation of difference between IPO and FPO is quite stimulating and the clarity is well brought out to the lay persons and the ignoramuses like me. Kudos and encomiums !!!
R.Kesavan.
kesavan7777@yahoo.com
short and crisp but easily comprehendible….thanks you very much for explicit explanation.
very well define.thanks
I have a question regarding the allotment price in case of the FPO.
What would be the impact of price on the share after FPO allotment?
How does it vary as per market rate of that share?
Abhishek,
It depends on whether new shares are issued in FPO.
If the promotors are selling their stake in FPO and there are no new shares, the price will not be impacted. In this case number of outstanding shares doesn’t increase.
In some cases, company issues new shares in FPO. In this case, number of stocks will increase and hence prices will go down.
THANKS ,I GOT MY ANSWER
nice explanation….
thanks………..!
Well defined,
thanks
good explanation
Thanks Kulothungan. Keep visiting the site.
thanks dude but i need more about prefincial share public limited and limited ….revocation..
Hi Abhay,
I didn’t get you. If you were referring to Preferential Shares please take a look at http://lastbull.com/what-are-preferential-shares/
Iam a beginner and i am happy that i was able to understand your description……….Thanks
THANKS FOR CLARIFYING MY CONFUSIONS ABOUT THESE TWO…
TY dude.. it s a good defination….
NICE ARTICLE
Hi Anuj,
Thank you. Keep visiting the site.
Hii!!!!
I already know about recession but would u please explain how the recession of other country like U.S.A.will affect the economy of INDIA?
vry well defined…….
Hi Rahul,
I am explaining it in short.
When Lehman Brothers filed bankruptcy, all creditors ran to insurance firms like AIG to exercise Credit default Swaps (CDS, an agreement where in an insurer pays money to the lender if the borrower defaults). AIG was at the edge of bankruptcy after paying most of the lenders. All the companies worldwide where AIG invested got affected. The effect is spiral.
For example if AIG defaults, the insurer of AIG and other companies deals has to pay.
In current circumstances, if Greece defaults, the European banks(which invested in Greece Sovereign debt)’ balance sheets will get bad. So all the companies across the world where these banks invested will suffer.
Thanks Neer. Recommend articles of the site to your friends.
Hii!!!!
I want to buy infrastructure bond plz help me in following
>how to buy infra.bond?
>Any bank A/C & stock broker is needed?
> is there any age limit?
hi m frm icici direct, ONGC FPO is about to launch in few days. You can get open yr bank and demat ac with ICICI. For more info contact me on mail jagjitsingh.av@gmail.com
Hi Rahul,
At present no infrastructure bond issue is open. I provide details about the infra bonds without fail. You can register for sending articles on email and read the details when they are posted. Or You can check the site regularly.
Bank Account is needed as you need to give a cheque and the interest amount would be credited online if you opt for it. brokerage account is needed in some cases depending on the issue. I don’t think there is any age limit.
good one thank you
Thanks Rohit,
Keep visiting the site.
i would like to know if the prices of new shares issued in fpo can be more than the market price of existing shares of the same company. please reply ASAP. i have a debate too prepare. i would be highly grateful.
VERY CONCEPTUALLY DEFINED IN QUITE PLAIN AND SIMPLE TERM
Thanks Vikrant. Keep visiting the site.
Hi Dhruv,
Yes, it is quite possible. In this case, if the sentiment is positive in the scrip the market price goes up to match the FPO price.
Hi Dhruv,
Thanks, I have doubt. If market price is less than FPO, then why should any one buy in FPO?
1)How the share price is decided?
2) What factors should investor know if he has to predict if the price of certain share will go high or dip down? How to predic it?
Thanks for sharing this piece of information….