What Is FPO in IPO? Meaning, Types, Process & How to Apply

• A listed company may use a Follow-on Public Offer (FPO) to raise capital or allow existing shareholders to sell holdings to the public. Unlike an IPO, an FPO is made by a company that is already listed.

A fresh issue can increase share capital, while an Offer for Sale (OFS) involves existing shareholders selling shares.

What Is an FPO?

A Follow-on Public Offer (FPO) is an offer of specified securities by a listed issuer to the public for subscription. Under the SEBI framework, an FPO may also include an Offer for Sale (OFS) of specified securities by existing holders of a listed issuer.

The key difference between an IPO and an FPO is the issuer's listing status. An IPO is a public offer by an unlisted issuer, whereas an FPO is made by an issuer that is already listed.

An FPO is part of the primary market when investors subscribe to securities being offered by the issuer. An OFS component involves existing shareholders selling their securities, so an FPO should not broadly be described as a secondary-market transaction.

Companies may use a fresh issue for capital expenditure, expansion, debt repayment or other objects disclosed in the offer document. In an OFS, the proceeds generally go to the selling shareholders rather than the company.

How Does an FPO Work?

The FPO process follows the regulatory and disclosure framework applicable to public issues under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, as amended.

FPO process:

1. Obtain corporate approvals and appoint issue intermediaries.
2. Prepare and file the offer document and disclose issue terms.
3. Open the issue for eligible investors to submit bids.
4. Process applications and finalise allotment.
5. Credit allotted securities and release or debit applicable funds.

The issuer appoints intermediaries, prepares the offer document and makes required disclosures.

Once the issue opens, eligible investors submit bids through ASBA, with UPI available where applicable. For a book-built issue, the final price is determined through book-building. Applications are then processed, allotment finalised and securities credited to Demat accounts.

FPO vs IPO: Key Differences

Both are public offerings, but the issuer's listing status and available market information differ.

An FPO may contain a fresh issue, an OFS, or both. Investors should check who receives the proceeds and whether share capital will increase.

An FPO is not automatically less risky than an IPO; its shares remain subject to market, business and valuation risks.

Types of FPOs

An FPO can involve a fresh issue of shares, an Offer for Sale (OFS), or a combination of both. The distinction determines whether the company receives the funds and whether its share capital increases.

1. Fresh Issue

In a fresh issue, the company issues additional shares and receives the proceeds, subject to the objects disclosed in the offer document. The number of outstanding shares increases, which can dilute existing shareholders' percentage ownership and may affect EPS.

Example: Suppose Company X has 10 million shares and earns ₹10 million in annual profit. Its EPS is ₹1. If it issues 2 million new shares while profit remains ₹10 million, total shares become 12 million and EPS falls to about ₹0.83.

The effect on EPS depends on post-issue earnings.

2. Offer for Sale (OFS)

In an OFS component, existing shareholders sell their shares to the public. No new shares are created and the proceeds go to the selling shareholders rather than the company. Because the share count does not increase merely because of the OFS, it does not by itself dilute the company's EPS.

An FPO may therefore be structured as a fresh issue, an OFS, or both.

Fresh Issue vs OFS

Why Do Companies Launch an FPO?

A listed company may use an FPO to raise additional capital for purposes disclosed in its offer document. An OFS may also enable existing shareholders to sell holdings.

1. Funding Business Expansion

A company may raise equity capital for manufacturing capacity, infrastructure, technology or other projects, with the use of proceeds disclosed.

2. Repaying Debt

A fresh issue may repay or reduce specified borrowings where this is a stated object, potentially changing the capital structure.

3. Other Corporate Purposes

Proceeds may be used for working capital, acquisitions or other permitted purposes disclosed in the offer document. Investors should check the 'Objects of the Issue' section.

4. Increasing Public Shareholding

An OFS may help a listed company meet applicable minimum public shareholding requirements. Listed companies are generally required to maintain minimum public shareholding of 25%, subject to applicable exceptions. An FPO is one possible route, not the only route.

FPO Eligibility and Requirements

The eligibility and disclosure requirements for an FPO are governed primarily by the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations) and other applicable laws.

Requirements vary with the issue structure. Investors should distinguish between issuer eligibility and individual investor eligibility.

Investor Categories in an FPO

For a conventional book-built public issue, the broad allocation framework includes:

These percentages are subject to applicable regulations, issue structure and permitted adjustments.

Who can Apply for an FPO?

For an individual investor, the basic requirements generally include:

• A PAN.
• A valid Demat account with a depository participant.
• A bank account or eligible UPI facility for the applicable ASBA mechanism.
• Compliance with the eligibility conditions and application limits specified for the issue.
• The offer document provides details.

How to Apply for an FPO

The application process is broadly similar to an IPO. Investors can apply through the ASBA framework, including UPI where available.

Method 1: Applying Through a Broker Using UPI

Log in to the broker's platform: Open the IPO/public-offer section and select the FPO.

Enter bid details: Select quantity and bid price according to the issue terms; use the cut-off option where permitted.

Enter the UPI ID: Provide the UPI ID linked to the bank account from which funds will be blocked.

Submit the application: Review and submit the bid.

Approve the UPI mandate: Approve the mandate within the prescribed time.

The application amount is blocked rather than paid upfront. Investors should ensure sufficient funds and timely UPI mandate approval.

Method 2: Applying Through Net Banking Using ASBA

1. Log in to the bank's internet banking platform and open the ASBA section.
2. Select the FPO and enter investor, Demat and bid details, including quantity and price.
3. Submit the application and authorise the blocking of funds.

Under ASBA, the application amount remains blocked. Funds for allotted shares are debited and the remaining amount is released according to the applicable process.

Important Points Before Applying

Before applying, investors should verify:

• The issue opening and closing dates
• The price band or issue price
• The lot size and minimum application quantity
• The applicable investor category and investment limit
• The cut-off option and UPI mandate deadline, where applicable
• The details and risks in the offer document

An FPO application does not guarantee allotment. The outcome depends on demand in the relevant investor category and the applicable basis of allotment.

FPO Allotment Process

Once the FPO closes, applications are processed and the basis of allotment is finalised according to applicable regulations and issue terms. The registrar processes application data and identifies valid and invalid applications.

Allotment Scenarios

1. Application Verification

Applications may be rejected for incorrect details, invalid PAN or Demat information, prohibited multiple applications, or failure to complete the required payment or UPI mandate on time.

2. Basis of Allotment

If a category is oversubscribed, applicants may not receive the entire quantity applied for. For retail investors, the basis follows SEBI requirements and issue terms. A successful applicant does not necessarily receive one full lot.

3. Demat Credit and Release of Funds

Allotted shares are credited to successful applicants' Demat accounts. For unsuccessful applicants, or the portion not allotted, the corresponding blocked amount is released according to the applicable ASBA process and timeline. Allotment status can be checked through the registrar's website or other specified channels.

Advantages and Risks of Investing in an FPO

An FPO gives investors access to a public issue of an already-listed company, but existing market information does not eliminate investment risk.

Advantages

1. Existing Information: Investors can examine financial statements, corporate disclosures, shareholding information and historical market performance alongside the offer document.

2. Market Price Reference: The prevailing market price provides an additional reference when assessing the issue price, although it can change and does not guarantee attractive pricing.

3. Access to Additional Shares: An FPO may provide an opportunity to subscribe to shares of an established listed company. Relevant factors include issue price, fundamentals, use of funds and market conditions.

4. Regulatory Disclosures: The offer document contains information about the issuer, issue, objects, financial information and risks under SEBI's framework.

Risks

1. Market Price May Fall Below the Issue Price: If the market price falls below the issue price, an investor may face a notional loss even if shares are allotted.

2. Dilution in a Fresh Issue: A fresh issue increases shares outstanding, which can dilute existing ownership and affect EPS. The effect depends on fund utilisation and earnings.

3. Use of Proceeds: Business conditions can change, and projects funded through a fresh issue may not generate expected returns.

4. Broader Market and Business Risks: Interest rates, economic conditions, industry developments, company performance and market sentiment can affect the share price.

What Should Investors Check Before Applying for an FPO?

Investors can examine the offer document and existing public filings rather than relying only on the issue price or a stated discount.

The offer document should be the primary source for issue-specific information. Investors should distinguish between a fresh issue, where the company receives proceeds, and an OFS, where they go to selling shareholders.

FAQs

What is an FPO in the stock market?

An FPO, or Follow-on Public Offer, is a public offer of securities by a company that is already listed on a stock exchange. It may involve a fresh issue, an OFS, or both.

What is the difference between an IPO and an FPO?

An IPO is a public offer by an unlisted issuer, while an FPO is made by an issuer that is already listed. Investors in an FPO can therefore also consider the company's existing market disclosures and trading history.

Is an FPO a fresh issue?

Not necessarily. An FPO can consist of a fresh issue, an OFS, or a combination of both. In a fresh issue, the company issues new shares and receives the proceeds. In an OFS, existing shareholders sell their shares.

How can I apply for an FPO?

Eligible investors can generally apply through the ASBA mechanism. Depending on the issue and investor eligibility, applications can be submitted using UPI through an eligible intermediary or through the ASBA facility offered by participating banks.

Is FPO cheaper than the market price?

An FPO may be offered at a price that is different from the prevailing market price, including at a discount in some issues. However, there is no general rule that every FPO must be cheaper than the market price. The issue terms and prevailing market price should be checked for each FPO.

What happens if an FPO is oversubscribed?

If an FPO is oversubscribed, investors may receive fewer shares than they applied for or no shares, depending on the subscription level, investor category and applicable basis of allotment.

What happens to my money if I do not receive an FPO allotment?

Under ASBA, the application amount is blocked in the investor's bank account. If shares are not allotted, the relevant blocked amount is released according to the applicable process.

Can an FPO dilute existing shareholders?

A fresh issue can increase the company's total number of outstanding shares and therefore dilute existing shareholders' percentage ownership. An OFS does not create new shares and, by itself, does not increase the number of outstanding shares.

Is an FPO less risky than an IPO?

Not necessarily. An FPO issuer has an existing trading history and public disclosures, but its shares remain exposed to company-specific, market and valuation risks.