An issuance of additional shares by an already-listed company to raise more capital from the public, either through fresh issue of shares or an offer for sale by existing holders.
A Follow-on Public Offer (FPO) is the issuance of shares by a company that is already listed on a stock exchange. It is the sequel to the IPO — while an IPO marks a company's first entry into public markets, an FPO is a subsequent capital-raising exercise. FPOs can be dilutive (fresh issue of new shares) or non-dilutive (Offer for Sale by existing shareholders).
In a fresh issue FPO, the company creates and sells new shares to raise additional capital. This dilutes existing shareholders' ownership percentage. For example, if a company with 10 crore shares outstanding issues 2 crore new shares via FPO, existing holders' ownership drops from their previous percentage to (their shares / 12 crore). The company receives the funds raised, which it uses for expansion, debt reduction, or capital expenditure.
In an Offer for Sale (OFS) FPO, existing shareholders (typically promoters, private equity investors, or the government) sell their shares to the public. No new shares are created, so there is no dilution. The proceeds go to the selling shareholders, not the company. Government disinvestment in PSU companies (like the LIC IPO or OFS in Coal India, ONGC, NHPC) frequently uses this route.
SEBI regulations for FPOs include: minimum 20% of the issue size must be reserved for retail investors, the pricing must be at or below the volume-weighted average price of the preceding 2 weeks (for OFS), and the company must make full disclosures via a prospectus or offer document filed with SEBI and the registrar of companies.
The market impact of an FPO depends on its purpose and pricing. A well-priced FPO by a growing company (like Adani Enterprises' Rs 20,000 crore FPO in January 2023, which was ultimately subscribed despite controversy) can signal confidence and fund growth. However, a large FPO can temporarily depress the stock price due to supply increase. Indian investors typically evaluate FPOs based on: discount to market price, use of proceeds, promoter participation (are they selling or buying alongside?), and the company's growth trajectory.
India Context
SEBI mandates 20% retail reservation. Government uses OFS route for PSU disinvestment. Pricing must be at or below 2-week VWAP for OFS. Adani Enterprises FPO (Jan 2023) was a notable recent example.