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Understanding Follow-on Public Offerings

A Follow-on Public Offering (FPO) allows a publicly listed company to issue new shares to raise additional capital after its initial public offering (IPO). The FPO provides existing shareholders the opportunity to increase their stake while attracting new investors, as exemplified by the State Bank of India's FPO in 2014, which aimed to strengthen its capital base. FPOs serve various purposes, including raising funds, reducing debt, and diversifying shareholders, but investors should still consider the associated risks before participating.

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15 views2 pages

Understanding Follow-on Public Offerings

A Follow-on Public Offering (FPO) allows a publicly listed company to issue new shares to raise additional capital after its initial public offering (IPO). The FPO provides existing shareholders the opportunity to increase their stake while attracting new investors, as exemplified by the State Bank of India's FPO in 2014, which aimed to strengthen its capital base. FPOs serve various purposes, including raising funds, reducing debt, and diversifying shareholders, but investors should still consider the associated risks before participating.

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A Follow-on Public Offering, commonly known

as an FPO, occurs when a company already


listed on a stock exchange issues new shares to
the public to raise addi onal capital a er its
ini al public offering (IPO). Due to its similarity
in principle, FPO is o en regarded as a
secondary IPO.

How FPO Works:


During an FPO, a company already listed on a stock exchange decides to raise addi onal capital.
Instead of issuing new shares to private investors or ins tu ons, the company offers these new
shares to the exis ng shareholders and the public. This move allows the company to tap into the
public market for funds while giving exis ng shareholders an opportunity to increase their stake or
new investors to join the ownership ranks.

EXAMPLE : Certainly! One of the notable examples of an FPO in India It the State Bank of India’s
(SBI) Follow-on Public Offering in2014. SBI, India’s largest bank, decided to raise capital to
strengthen its balance sheet and support future growth ini a ves.

State Bank of India (SBI) FPO 2014: In 2014, SBI launched an


FPO where it issued addi onal shares to the public and exis ng shareholders. The bank offered
over 31.3 crore shares for Rs 1,565 per share. This FPO aimed to raise funds for the bank's
expansion plans, lending ac vi es, and mee ng regulatory requirements. Exis ng shareholders of
SBI and the general public were able to par cipate in this offering. The FPO garnered significant
a en on from investors and contributed to SBI’s capital base, allowing the bank to strengthen its
posi on in the market and support the country’s economic development through increased
lending and financial services.

FPOs serve many purposes, from raising capital to reducing debt burdens. A public company may
opt for a secondary offering of its shares for these reasons:

1. To raise funds
An FPO allows companies to raise addi onal capital when the need arises. Companies can channel
the funds they generate through an FPO to fund new ini a ves or launch new projects. The public
contributes to the company's growth through the follow-on public offer.

2. To reduce debt
Yet another reason why a company might issue an FPO is when it needs to get rid of some of its
debt burden. The money raised through the FPO pays off the company's debt and improves its
debt-to-value ra o.
3. To diversify shareholders
When exis ng shareholders wish to sell their shares, that is a good me for a company to
announce a follow-on public offer. As a result, a new and diverse set of shareholders become part
of the company.

In conclusion
A follow-on public offer benefits the company that issues it and the investors looking forward to
securing shares. Before you apply for FPOs, take your me to understand how they work and the
two types of FPOs that companies may issue. While follow-on public offers have a lower risk than
ini al public offers, do not forget that risk is s ll something to account for. This means that careful
considera on applicable to other investment decisions applies to FPOs as well. This way, you can
make the best of the FPO world while priori zing your goals and interests. Keep an eye out for
FPOs! They are undoubtedly lucra ve opportuni es for investors.

REFRENCE:

 Data collected from different websites through Google.


 Example collected from SBI Website

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