FPO - ECONOMY
News: Explained
| What made the Adani Group call off its FPO?
What's in the news?
● Adani
Enterprises decided on February 1 to call off its ₹20,000 crore follow-on
public offer and return the money that it had collected from investors.
● The
Adani Group has seen the stocks of its publicly listed companies crash steeply,
causing its overall market capitalization to drop by ₹9.11 lakh crore.
Key takeaways:
● A
report by U.S. firm Hindenburg Research on January 24 had accused the Adani
Group of stock manipulation and accounting fraud.
● The
Group has denied all allegations.
What is a follow-on public offer?
● An
FPO is a process wherein a company that is already
publicly listed in the stock market issues additional shares to investors.
● During
an FPO, a company could decide to issue fresh shares to investors, or existing
shareholders in the company could decide to sell their shares to other
investors.
Types of FPO:
1. Dilutive FPO:
● This
is the process where the company issues
additional fresh shares to the public to raise capital.
● It
results in increasing the company’s total outstanding shares, decreasing the
Earnings Per Share (EPS).
2. Non-Dilutive FPO:
● A
non-diluted FPO is when the company’s largest shareholders, such as the
founders or board of directors, offer
the shares they hold privately to the general public.
● Unlike
a diluted IPO, this method does not increase or decrease the company’s number
of shares.
Difference from IPO:
● An
FPO is similar to an initial public offering (IPO), except that an IPO refers
to the issuance or sale of shares by a
company to investors when it taps into the public market for the very first
time.
● Companies
can float an FPO to raise equity capital for various reasons such as to pay off
debt or to improve their capital structure.
● FPOs
can also be a way for existing shareholders to sell their shares and exit the
company.
Go back to basics:
IPO:
● In
the primary market, an IPO is the sale of securities to the general public. New
securities are issued for the first time on the primary market.
● It
occurs when an unlisted firm, for the first time, issues new securities or
makes an offer to sell existing securities to the public.
○ Companies
that are not listed on a stock exchange are known as unlisted companies.
● It
is commonly utilized by small and medium-sized businesses seeking capital to
build and expand their operations.