IPO | FPO: ALL YOU NEED TO KNOW
1. What is the difference between IPO & FPO?
IPO means Initial Public Offering (IPO). When the private limited company raise capital from general public for the first time it called IPO. Usually general public can not invest in shares of private limited company even though they knows that XYZ Pvt Ltd. Company performing well & chances of future growth is also very high. When this company goes to public & issue IPO, then general public can invest in shares of that company and by that way company get funds from public for the growth of business.
FPO means Further Public Offer or Follow On Public Offer. As the name suggests, when already listed company issue new shares to the investors or the existing share holders it called FPO. Main reason behind issuance of FPO is to raise equity capital or to reduce debt from fund received by FPO.
2.What are the different types of IPO?
i) Fixed Price Issue:
(1) The share price is fixed by the company going public on the first day of issue.
(2) General public can not know the demand of the issue. Demand from the markets is only knows when issue is closed.
(3) 100% payment should be done at the time of making application.
(4) 50% shares offered are reserved for application below 2 lakh and Balance 50% for application above 2 lakh.
ii) Book Building Issue:
(1) The exact share price is not fixed. Company gives price band of 20% to the investors for bidding. The lowest price known as floor price & highest price known as cap price.
(2) Demand for the securities offered , and at various prices, is available on a real time basis on the BSE website during the bidding period.
(3) Payment can be made only if shares are alloted.
(4) Fixed % of Shares are reserved for :
Qualified Institutional Buyer (QIB),
Non Institutional Investors (NII) or High Networth Investors (HNI)
Retail Institutional Investors (RII)
3. What are the different types of FPO?
i) Dilutive FPO:
(1) Here company issues additional shares to general public for raising funds.
(2) Here Number of shares & share capital increase.
(3) Due to increase in share capital, EPS also changes.
(4) It affects capital structure of company. Ratio of Debt equity also changes.
ii) Non-Dilutive FPO:
(1) Here existing privately held shares by promoters, members, Board of directors issued to general public.
(2) Here additional or new shares not issued to public. Therefore, Number of shares & Share capital remains same. Only holders of shares are changed.
(3) There is no change in share capital therefore no effect on EPS of the company.
(4) Capital structure of company also remains the same.
4. Meaning of different terms used in IPO:
5. How Shares are allotted to retail investors?
6. How to maximise the chances of getting an allotment?
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