What is a follow-on public offer? | Follow-on Public Offer | FPO | FPO India | Business Standard

Summary

Gotham Adani, the world's third richest man, plans to raise 20,000 crore rupees through a follow-on public offer (FPO) by March 2023, as his company expands into sectors like cement and healthcare. This FPO, India's fourth-largest capital raising program, aims to address concerns about the group's debt and promoter shareholding. An FPO involves issuing additional shares by a listed company, with three types: dilutive, non-dilutive, and at the money. Despite potential dilution, Adani Enterprises' FPO is expected to have minimal impact on share price, offering investors a safer investment opportunity with short-term arbitrage potential. For the latest business insights, subscribe to Business Standard.

Takeaways

• 🌍 Gotham Adani, the world's third richest man, is planning to raise funds.
• 💰 Adani Enterprises aims to raise 20,000 crore rupees by March 2023 through fresh equity.
• 🏗️ The fundraise is a follow-on public offer (FPO), as the group expands into sectors like cement and healthcare.
• 📈 This FPO will be India's fourth biggest capital raising program and the largest via FPO.
• 🔍 FPOs issue additional shares of a company already listed on stock exchanges, unlike IPOs which offer shares for the first time.
• ⚖️ Adani Enterprises' FPO is dilutive, meaning it will increase the number of outstanding shares, diluting existing shareholding.
• 📉 Despite the dilution, the expected impact on share price is minimal according to analysts.
• 💡 There are three types of FPOs: dilutive, non-dilutive, and at-the-market offerings.
• 🏢 Most companies avoid FPOs due to their cumbersome process and high distribution costs.
• 📊 Investing in an FPO is generally safer as investors are already familiar with the company, and FPO prices are typically lower than market prices, providing arbitrage opportunities.

Q & A

Who is Gotham Adani and what is his current financial status according to the transcript?

Gotham Adani is the world's third richest man, and his group's flagship company, Adani Enterprises, is planning to raise fresh equity.

What is the purpose of Adani Enterprises' proposed fund-raising?

Adani Enterprises aims to raise funds to support the group's aggressive expansion into sectors such as cement and healthcare.

What is the value of the equity that Adani Enterprises plans to raise by March 2023?

Adani Enterprises plans to raise 20,000 crore rupees in fresh equity by March 2023.

What is an FPO and how does it differ from an IPO?

An FPO, or follow-on public offer, is the issuance of additional shares by a company already listed on stock exchanges, unlike an IPO, which is the first-time offering of shares on a stock exchange.

How does the proposed FPO by Adani Enterprises impact the company's equity base and earnings per share?

Since the proposed equity issuance is worth less than 5% of its current market capitalization, its equity base and earnings per share are expected to dilute by 5 to 6% at most.

What are the three types of FPOs mentioned in the transcript?

The three types of FPOs are dilutive, non-dilutive, and at-the-money.

What is a dilutive FPO and how does it affect a company's shareholding pattern?

A dilutive FPO involves the issuance of new shares, leading to an increase in the company's outstanding shares and diluting its existing shareholding pattern.

What is a non-dilutive FPO and how does it differ from a dilutive FPO?

A non-dilutive FPO involves the issuance of shares that are already in existence, meaning directors or promoters sell their privately held shares, without increasing the total number of shares for the company.

What are the challenges companies face when raising funds through an FPO?

Companies face challenges such as cumbersome processes, higher distribution costs, and the need to organize numerous road shows at different locations.

Why have FPOs been less popular in India since 2015?

FPOs have been less popular due to the cumbersome process and higher costs associated with them, as compared to other methods of raising capital.

What are some recent examples of companies that have raised funds through FPOs?

Recent examples include Patanjali Foods, which raised 4,300 crore rupees through an FPO, and Yes Bank, which raised 15,000 crore rupees in July 2020.

What are the benefits for investors considering investing in an FPO?

Investing in an FPO is safer as investors are already familiar with the company, its management, and financial statements. Additionally, FPO prices are usually lower than market prices, offering short-term arbitrage opportunities.

What advice does the transcript give to potential investors in an FPO?

The transcript advises investors to conduct an in-depth analysis of the company before investing in an FPO.