FPO is an abbreviation for a Further Public Offer. The FPO Cycle starts after an IPO. FPO is a public offering of stock by a publicly traded firm to investors at large. In FPO, the firm goes to the general public for yet another issue of shares in order to diversify its asset base. The Business offers a prospectus for FPO.
Through ICDR regulation 26
The issuer has to fulfill all the following five conditions to make FPO:
1. (d) The aggregate of the proposed issue and all previous issues made in the same financial year in terms of issue size does not exceed 5 times its pre-issue Net worth as per the preceding financial year's audited balance sheet;
(e) If it has changed its name within the last 1 year, at least fifty percent. of the revenue for the preceding one full year has been earned by it from the activity indicated by the new name.
2. An issuer which fails to meet any of the conditions laid down in sub-regulation (1) make an initial public offer where
(a) (i) FPO is made through 100% book building Process + at least 50% of the net offer to the public (NOTP) shall be given to QIBs
(ii) If the FPO at least 15% of issue size shall be given to bank/FIs. Provided further that 10% out of 15% shall be given to appraiser + at least 10% of issue size shall be given to QIBs
(b) (i) Post issue size face value less than or equal to 10 crores of capital
(ii) the issuer undertakes to provide market-making for at least two years from the date of listing of the specified securities, subject to the following:
(1) Market makers promise to buy and sell quotes of at least three hundred listed securities and ensure that the bid-ask spread for their quotes does not exceed ten percent at any time.
(2) The inventory of the market makers shall be at least five percent as at the date of allocation of the specified securities. Of the problem which was raised.
The minimum allottee should be 1000.
Advantage of Listing:
➲ Way to raise capital from public
➲ Increase Liquidity
➲ Increase Credibility
➲ Helps in Merger & Acquisition
➲ Enhance Goodwill & reputation
Disadvantages of Listing:
➲ Listing subject to many risks since the market is volatile
➲ Brokerage commission decreases profit margins
➲ Time Taking process
a. Appointment Of investment Banker
➲ All banks, public or private have an investment division that takes care of the FPO process
b. Registration forms to SEBI
➲ Every FPO has to mandatorily register with SEBI and once it gets the approval, the FPO is ready to get listed on the exchanges.
c. Red Herring prospectus
➲ The Red Herring Prospectus is a document that contains all the information about the FPO - the size of the FPO, financial statements, company history and the future plan of the company.
➲ Advertising includes everything from putting up hoardings to giving interviews to news channels and magazines. Basically, the more your company is talked about and known, the more demand it will attract from the investors, which in turn will help in a better listing price on the exchanges.
e. Price Band set by investment Banker
➲ The investment bank goes through all the financial statements of the company and sets a price band for prospective investors to bid within the price band.
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