FPO is when an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, through an offer document. An offer for sale in such scenario is allowed only if it is made to satisfy listing or continuous listing obligations. Public companies can also take advantage of an FPO through an offer document. The word FPO came into news after the YES Bank announcement to raise Rs 2,000 crore through FPO and debt.
FPOs should not be confused with IPOs and OFS. The initial public offering of equity to the public. FPOs are additional issues made after a company is established on an exchange. As the name suggests initial public offering (IPO) is the first offer for purchase to public . For instance, ICICI Bank was a listed entity but came out with FPO of around Rs 8,750-crore equity shares in July 2007. The issue remained open for subscription between July 19, 2007, and July 22, 2009. Similarly Bharat Earth Movers (BEML), which was listed in National Stock Exchange on November 5, 2003, came out with a public offer of 49 lakh shares in 2007. Shares of BEML were issued at Rs 1,075 after the closure of the FPO. Offer for sale (OFS) is a simpler method of share sale through the exchange platform for listed companies. The mechanism was first introduced by India’s securities market regulator Sebi, in 2012, to make it easier for promoters of publicly-traded companies to cut their holdings and comply with the minimum public shareholding norms by June 2013.
In case, a company wants to come out with FPO and have changed its name within a year, at least 50% of the revenue of the last one-year must have come from the activities defined by the new name. The size of the issue should not be more than five times the pre-issue net worth of the company as mentioned in the balance sheet of the previous financial year.
Unlike a follow-on public offering (FPO), where companies can raise funds by issuing fresh shares or promoters can sell their existing stakes, or both, the OFS mechanism is used only when existing shares are put on the block. Only promoters or shareholders holding more than 10 per cent of the share capital in a company can come up with such an issue. The mechanism is available to 200 top companies in terms of market capitalisation. In an OFS, a minimum of 25 per cent of the shares offered, are reserved for mutual funds (MFs) and insurance companies. At any point, no single bidder other than these two institutional categories is allocated more than 25 per cent of the size of the offering. A minimum of 10 per cent of the offer size is reserved for retail investors.