- IPO (Initial Public Offering): The first time a private limited company issues shares to the public. To raise capital & get listed on stock exchanges and become a public limited company.
- FPO (Follow-on Public Offering): When an already listed company in a stock market issues more new shares to the public to raise additional capital.
- Rights Issue: When an already listed company in a stock market offers new shares only to its existing shareholders, usually at a discount, to raise more capital.
1. IPO (Initial Public Offering)
An IPO is a private limited company’s first time listed on the stock market. It’s the process through which a private limited company becomes a public limited company by selling its shares to the general public.
Key Characteristics:
- Purpose: The money raised is used for expanding the business and debt repayment. Early investors, like founders, venture capitalists, or foreign investors, might want to cash out their investments.
- Issuer: A private limited company going public for the first time.
- Participants: The company, investment banks as underwriters, the QIB (Qualified Institutional Investors), Non-Institutional Investors (NIIs), and Retail Individual Investors (RIIs).Regulators (SEBI) to ensure transparency, compliance, and investor protection.
- Price Determination: The price is set through a book-building process. The company sets a price band (e.g., ₹100–₹110). or a fixed price method The company decides and announces a fixed price for the IPO shares in advance before the listing. Mostly in India, they use the book-building process.
- Impact on Ownership: It dilutes the ownership percentage of the original founders and private investors as new shareholders are added.
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2. FPO (Follow-on Public Offering)
An FPO is an already listed company that issues additional shares to the public. Purpose of Raise more funds for expansion, debt repayment, etc. through a subsequent public offering made by a company that is already listed on a stock exchange. The “initial” part is over; this is a “follow-on” sale.
Key Characteristics:
- Purpose: To raise additional equity capital from the stock market for further expansion, to reduce debt, acquisitions, or to strengthen the balance sheet. To allow promoters and early investors to sell their stake.
- Issuer: A company that is already listed on the stock exchanges.
- Participants: The public company, investment banks, promoters, retail investors (individuals), qualified institutional buyers (QIBs), and non-institutional investors. Regulators (SEBI) to ensure transparency, compliance, and investor protection.
- Types of FPO:
- Dilutive FPO: The company issues and sells new shares to the public. Purpose of Raise fresh capital for expansion, debt repayment, or working capital. This method increases the total number of shares outstanding, which dilutes the ownership and often the Earnings Per Share (EPS).
- Non-Dilutive FPO: Also known as an “Offer for Sale” (OFS). Here, existing large shareholders (like promoters or early investors) sell their own shares to the public. The company does not receive any money; the proceeds go to the selling shareholders. The total number of shares in the market remains the same.
- Price: Can be set at a fixed price or have a price band.
3. Rights Issue
A rights issue is when an existing listed company offers new shares to existing shareholders at a discounted price. Purpose of Raise funds: existing shareholders get rights to buy additional shares at a discounted price. method for a listed company to raise capital by offering additional new shares exclusively to its existing shareholders.
Key Characteristics:
- Purpose: To raise capital quickly, often giving an advantage to existing shareholders.
- Issuer: A company that is already publicly traded.
- Participants: Only existing shareholders as of a specific “record date”. Regulators (SEBI) to ensure transparency, compliance, and investor protection.
- The “Rights”: Shares are offered in proportion to the shareholder’s existing holding (e.g., 1 new share for every 5 shares you own). These rights are often offered at a discount to the current market price to incentivise participation.
- Transferable Rights: If a shareholder does not wish to subscribe, they can sell their “rights” (the entitlement to buy the new shares) on the stock exchange until the offer expires.
- Impact: It is dilutive to the EPS, but it protects existing shareholders from dilution of their ownership percentage if they choose to participate. If they don’t, their stake gets diluted.
Summary Table: IPO vs. FPO vs. Rights Issue
| Feature | IPO (Initial Public Offering) | FPO (Follow-on Public Offering) | Rights Issue |
| Full Form | Initial Public Offering | Follow-on Public Offering | Rights Issue |
| Stage | Company’s first time going public | The company is already listed on the stock market. | The company is already listed on the stock market. |
| Purpose | Raise capital, become public | Raise additional capital | Raise capital from existing shareholders |
| Eligibility | Private Company | Publicly Listed Company | Publicly Listed Company |
| Offer To | General Public(Retails,NIIs,QIBs) | General Public(Retails,NIIs,QIBs) | Existing Shareholders Only |
| Price | Set via Book Building / Fixed Price | Fixed Price or Price Band | Usually at a Discount to market price |
| Impact | Creates public shareholders | Dilutes ownership (if dilutive FPO) | dilutes existing shareholders’ ownership. |
| Frequency | Once in a company’s lifetime | Can be done multiple times | Can be done multiple times |
Important for Investors
- IPO: High risk, high reward. Investors are bidding on a company’s future potential, financials and fundamentals with no trading history on the public market. Strong market demand may affect allotment and listing gains.
- FPO:– Analyze financials, debt, growth prospects, and management.Understand FPO Type of Dilutive (fresh shares) vs Non-dilutive (existing shares sold). Is it for growth (good) or because it’s in trouble (bad)? A dilutive FPO can lower the stock price in the short term. Compare FPO price with current market price.
Rights Issue: It’s generally a shareholder-friendly move as it offers shares at a discount. Investors must decide whether to invest more money, sell your rights, or let the offer lapse, which would dilute your ownership. Evaluate the company’s
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