IPO/FPO (Public Issue)

IPO/ FPO (PUBLIC ISSUE)                          

Issuing shares and investing in shares is not new for all of us. This is something which we always come across in our daily lives. Had we given a thought to what a share actually is? A share is the smallest part into which the capital of the company is divided. Share denotes the ownership of the person in the company, with respect to the number of shares he possess. Accordingly he will be eligible for various corporate benefits arising time to time i.e. Right issue, bonus issue, dividends and so on. Now the question arises, what are the ways of issuing shares that can be used by the company. The ways are as follows:

  • Public Issue
  • Initial Public Offer (IPO)
  • Further Public offer (FPO)
  • Bonus issue
  • Right Issue
  • Composite Issue

PUBLIC ISSUE :   Public Issue is when the company issues shares in the market to attract investors so as to raise capital. The companies can raise capital from the general public through the issue of prospectus. The prospectus contains the details of the securities to be issued, no. of securities offered, the price of securities etc., so that the investors can take an informed decision.  Public issue is further divided into IPO and FPO.

INITIAL PUBLIC OFFER (IPO):  When the company is issuing shares for the very first time in the primary market for raising capital in the open market, that issue is called as Initial Public Offer(IPO).  The issuing company may or may not be a new company or an existing company issuing shares for the very first time in the open market.

FURTHER PUBLIC OFFER (FPO):  When the existing company issues further shares in the secondary market so to as to raise further capital in the market it is called as Further Public Offer. FPO can be in the form of right issue, bonus issue, private placement, preferential issue etc.

RIGHT ISSUE:  Whenever the company wants to issue new shares in the market, the company offers shares to the existing shareholders first. Thus we can say that, it is a pre-emptive right of the shareholders to get the opportunity to subscribe the shares before it is offered to the general public. The shareholder can also renounce his shares in favour of other person if he himself does not intends to subscribe the shares offered.

BONUS ISSUE: When the company is prosperous the company can capitalise its profits by issuing shares to the existing shareholders of the company in proportion to their entitlement. These shares are given free to the shareholders. It is like bonus to them. Thus it is called as bonus issue of shares.

COMPOSITE ISSUE: A composite issue is one in which an already listed company offers shares on the public-cum-rights basis and makes concurrent allotment of the shares.

 

 

IPO VS FPO

IPO is the issue of shares, when the company is issuing shares for the general public to subscribe to the shares for the first time, Whereas FPO, is the issue of further shares in the market.

A company which is listed and abides by certain rules can raise funds through FPO by submitting a copy of RHP with the regulators as per the Fast Track Issues (FTI). Such company does not have to file an offer document but the same is compulsory in case a private company wants to initiate a FPO.

Thus we can further say that the IPO is primarily listing of shares in the primary market but FPO is listed on the secondary market where the shares of the company are already listed.

 

PROCESS OF BUYING SHARES

  • Firstly, the investor has to file an application with the broker or the bank branch or the distributor for subscribing shares of the company.
  • Secondly, the investor has to open a DEMAT account along with filling of application for subscription of shares.
  • The investor, give the investment details to the broker or the banker or the distributor as the case may be. The details as to the amount to be invested and the company in which he intends to invest his money and so on.
  • After closure of the issue the company shall allot the shares to the investor within 10 days of the closure of the IPO.

 

ISSUE OF SHARES UNDER IPO AND FPO

The already listed company or the company which intends to issue shares for the general public has to comply with the guidelines issued by SEBI in this regard. Before issuing shares to the general public the company has to submit the draft prospectus with SEBI. After proper scrutiny of the prospectus allow the company to issue shares. Only after approval of SEBI, the company can issue securities in the open market. Now the question arises that how can companies raise capital from the open market. It can be done so by following any of the two ways.

  • Fixed Price Method
  • Book Building Method

FIXED PRICE METHOD:  Under this method, the company issue prospectus indicating the details of the type of securities offered, the price of the securities etc. The prospectus contains the full details about the securities offered.

BOOK BUILDING METHOD:  Under this method a Red- Herring Prospectus (RHP) is issued by the issuing company instead of a prospectus. RHP is the one which does not contain the securities offered and the price of the securities. It only indicates the price range i.e. the cap price and the floor price. The prices are decided on the basis of the interest shown by the investors. The prices of such securities are decided by the foreplay of the market players.

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