Follow-On Public Offering (FPO)

FPO or Follow-On Public Offering is the issuance of shares to investors by a company already listed on the stock exchange. It is an issuance of additional shares made after the IPO to existing investors or shareholders. They are also known as secondary offerings. Companies announce FPOs to diversify their equity base and raise capital for business. This capital can be used for multiple purposes, such as to meet the company's expenses, business expansion, debt reduction, etc.

There are two types of FPOs:

• Dilutive FPO

It is when a company issues additional shares and offers them to the public.

It increases the number of outstanding shares of the company.

As the number of shares increase, the earnings per share (EPS) decrease.

Funds raised from such an FPO are allocated for expansion activities or to pay debts.

• Non-dilutive FPO

It is when shares that are already in existence are issued to the public.

It is when existing shareholders, like directors or founders, sell their shares and offer them to the public.

Non-dilutive FPOs are used to change the shareholding ownership.

At-the-market offering (ATM)

An ATM is a type of FPO through which a company can offer secondary public shares any day depending on the market rate to raise capital. The pricing of a FPO is market-driven. An at-the-market (ATM) offering gives the issuing company the ability to raise capital as needed.

Follow-on offerings are common in the investment world. They provide an easy way for companies to raise equity that can be used for common purposes. Companies announcing secondary offerings may see their share price fall as a result. Shareholders often react negatively to secondary offerings because they dilute existing shares, and many are introduced below market prices.

Recently, in January 2023, Adani Enterprises Ltd has come up with a follow-on share sale which has been fully subscribed on the last day of the ₹ 20,000 crore issue, according to markets data. Investors sought at least 4.62 crore shares against the offer of 4.55 crore shares.

Non-institutional investors put in bids for over three times the 96.16 lakh shares reserved for them. The 1.28 crore shares reserved for qualified institutional buyers, or QIBs, was almost fully subscribed, according to Bombay Stock Exchange data.