FPO (Follow-on Public Offer)
A Follow-on Public Offer (FPO) is a public issuance of shares by a company that is already listed on a stock exchange, enabling the company to raise additional equity capital from the public through a fresh issue of shares or enabling existing shareholders to exit via an offer for sale within the FPO structure.
A Follow-on Public Offer represents the listed company's return to the public equity market after its initial public offering. Unlike an IPO, where the company is seeking public market status for the first time, an FPO is conducted by a company that already has a publicly traded share price and an existing base of public shareholders. This existing market reference price provides an important anchor for pricing the FPO, making the valuation discussion more straightforward than in an IPO where no market price exists.
FPOs in India are governed by SEBI's ICDR Regulations, 2018. The regulations prescribe the minimum eligibility criteria for a listed company to conduct an FPO: the company must have a three-year track record of financial statements, no winding-up proceedings pending against it, and must be in compliance with all listing obligations. If the issuer does not meet these conditions, it must comply with certain additional requirements, including having a specified minimum promoter contribution and a lock-in on those shares.
The pricing of an FPO follows the same floor price formula as other secondary issuances under SEBI's regulations — the offer price must not be below the higher of the twenty-six-week or two-week average of the weekly high and low of the closing price. For an FPO with a price band (book-built FPO), the floor price serves as the lower end of the band. Since the market price is publicly observable, FPO pricing discussions are inherently anchored to the prevailing market price, and issuers typically offer a modest discount to the market price to ensure adequate subscription.
An FPO can include both a fresh issue component (where new shares are created and the proceeds go to the company) and an offer for sale component (where existing shareholders sell their shares and receive the proceeds). Large FPOs in India — particularly those by public sector banks and financial institutions — have historically combined both components, with the government selling a portion of its stake (OFS component) while the institution simultaneously raises fresh capital (fresh issue component) to meet regulatory capital requirements.
The subscription process, allotment mechanism, and post-issue compliance requirements for an FPO are broadly similar to those of an IPO. The key differences lie in the reduced uncertainty around valuation (given the existing market price), the generally shorter roadshow and marketing period needed, and the different investor base (existing shareholders of the company may participate alongside new investors). Existing shareholders considering applying in an FPO must also evaluate the dilutive impact of the fresh issue component on earnings per share, return on equity, and other per-share metrics.