What Is The Difference Between An IPO And FPO?

Classroom

oi-Sunil

By Sunil Fernandes

Published: Wednesday, October 7, 2015, 10:26 [IST]

There is a big difference between an Initial Public Offer, which is also called an IPO and a Follow On Public Offer (FPO).

The most important difference is that an IPO is offered for the very first time and an FPO would never be the first time.

A follow-on public offer can be done only after a initial public offering has been done. So, an IPO is done for the first time, while a FPO could be the second, third or fourth time to raise resources from the market.

In both the cases the objective is to raise money from the market. Though in an IPO it could also often mean that a promoter or a private holder, like a venture capitalist wants to sell his shares.

An initial public offering could be to fund the present business of the company and to list the shares on the stock exchange. In the case of a follow-on public offer the shares are already listed on the exchange.

Recently, there have been many FPO's by the government to reduce their stake in companies. Classic examples are Engineer India and Oil India.

There have also been many IPOs and the more recent one is the Cafe Cofee Day Enterprises Initial Public Offering, which is planned in the next few days.

There is an element of risk in an IPO, in the sense that you do not know at what price it would list and whether you would eventually make money through the IPO. A FPO is easy to subscribe to because you already know the listed price. So to that extent the risk is far less.

Here is a quick list of differences between an IPO and FPO
IPO	FPO
Raising money for the first time from the public.	Already raised money through an IPO.
Largely to fund expansion plans.	Maybe to reduce stake of existing promoters.
Shares would be listed for the very first time.	Shares have already been listed.
An element of risk as nobody knows the listing price.	Shares are already listed to lesser risk.
Navkar Corporation, Prabhat Dairy are examples of recent IPOs.	Classic cases are Engineer India, Oil India.
Mostly used by private sector.	Has also included the government, which has helped reduced stake in many companies.
Could involve raising fresh resources.	Could merely be a stake sale.

Conclusion

FPO's are comparatively far fewer then an IPO. In fact, compared to the earlier days, we do not see too many IPO's as well these days.

But, in any case if one has to list then an IPO becomes necessary.

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