What Is A Follow On Public Offer Or FPO?

There are many companies that come out with an Initial Public Offering (IPO) and later list their shares. However, at some stage that might need additional funding to meet various capital expenditure from time to time.

This may force them to come out with a Follow-On Public Offer or FPO. Apart from raising capital, it could also help promoters to reduce their holding in the company.

The Securities and Exchange Board of India recently reduced the requirement of market capitalization of public shareholding of the issuer for Fast Track Issues (FTI) to Rs 1000 crore in case of Follow on public offering (FPO) and Rs 250 crore in case of rights issue.

The move was aimed at fast tracking of listing. In India there have been many companies that have successfully raised money through a follow-on offer, after having completed an initial public offering.

What Is The Need For A Follow-On Offer Or FPO?

It is important to note that a company can come up with an FPO, when it is listed. So, the initial offering would be an IPO, while the latter would be a FPO. There is also an offer for sale, which could be done from time to time, which is largely keeping in mind to raise resources or dilute the stake.

For example, the government comes out with an Offer For Sale to dilute stake in various companies. More recently, we had the NTPC offer for sale, which saw the government raise around Rs 5000 crores to help curb the fiscal deficit.

So, we have various means to raise resources, through sale of shares. This would be through an IPO, FPO, Rights issue or through an offer for sale. The promoters need to check their own requirement before deciding on a particular mechanism.

There are also certain norms that one has to comply with when determining the type of offer. For example, you cannot come out with a FPO, unless an IPO is done.

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