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What is FPO?
A Follow-on Public Offer (FPO) is also called further public
offer. When a listed company comes out with a fresh issue of shares or makes an
offer for sale to the public to raise funds it is known as FPO. In other words,
FPO is the consequent issue to the public after initial public offering (IPO).
The word FPO came into news after the YES Bank announcement to raise Rs 2,000
crore through FPO and debt.
How is it different from an IPO?
As the name suggests initial public
offering (IPO) is the first offer for purchase to public. This is a process when
an unlisted company raises funds by offering its shares to the public and
consequently gets listed on a stock exchange. A company can either issue fresh
securities or offer its existing securities to public. However, if the same
company comes out with another issue to the public, the second issue would be
called an FPO. For instance, ICICI Bank was a listed entity but came out with
FPO of around Rs 8,750-crore equity shares in July 2007. The issue remained open
for subscription between July 19, 2007, and July 22, 2009. Similarly Bharat
Earth Movers (BEML), which was listed in National Stock Exchange on November 5,
2003, came out with a public offer of 49 lakh shares in 2007. Shares of BEML
were issued at Rs 1,075 after the closure of the FPO.
Under the Fast Track Issues (FTI), a listed
company, which meets certain entry norms, can proceed further with FPOs by
filling a copy of RHP to regulators. These companies don’t need to file a draft
offer document. However, it is mandatory for a private company, which wants to
come out with an IPO.
What are the other kinds of issues through
which companies raise money?
Apart from IPO and FPO, a company can raise funds
through a rights issue and private placement. A rights issue and bonus issue are
made to the existing shareholders. However, a rights issue is also a way to
raise funds but in a bonus issue new securities are issued to existing
shareholders without any consideration.
What are the regulatory requirements?
In case, a company wants to come out with FPO and
have changed its name within a year, at least 50% of the revenue of the last
one-year must have come from the activities defined by the new name. The size of
the issue should not be more than five times the pre-issue net worth of the
company as mentioned in the balance sheet of the previous financial year.
Nevertheless, a group of companies - private and
public sector banks - are exempt from these norms. Also, infrastructure
companies whose projects have been appraised and financed by any public
financial institution or companies such as IDFC and IL&FS do not need to comply
with these norms. Also, the promoter must contribute at least 20% of the
post-issue capital or 20% of the issue size.
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