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§01 · INSIGHTS · NOTE · 5 MIN · NOTE

FPO (Follow-on Public Offer)

A subsequent public equity offering by an already-listed company to raise additional capital or enable promoter/investor divestment, governed by SEBI ICDR Regulations 2018.

PublishedRead5 min
glossary
Contents
  1. Definition
  2. Mechanics & Timeline
  3. Tax Treatment
  4. Investor Protection
  5. Worked Example
  6. See Also
  7. Primary Source

Definition

A Follow-on Public Offer (FPO) is a public issue of equity shares by a company that is already listed on a stock exchange. Unlike an IPO, an FPO does not mark a company's debut on the exchange — it raises additional capital (fresh issue) or allows existing large shareholders to exit (OFS component). FPOs are governed by SEBI ICDR Regulations 2018, Chapter V (further public offer). Eligibility criteria are less stringent than IPOs since the company has an established public market price and listed history. FPOs are less common than rights issues for follow-on capital raises because they are more dilutive and involve broader public participation.

Mechanics & Timeline

Key phases of an FPO:

  1. Board & shareholder approval: Board resolution + special resolution of shareholders (or postal ballot).
  2. DRHP to SEBI: Filed with lead exchange. SEBI review typically 20–30 days (faster than IPO due to existing disclosure history).
  3. Price band / fixed price: If book-built, price band announced. For FPOs, pricing is benchmarked against the market price; ICDR Reg. 10A applies floor price = higher of average of last 2 weeks' high–low or 26 weeks' average.
  4. Subscription window: 3 working days; ASBA mandatory. Retail/NII/QIB allocation ratios same as IPO (35/15/50) for book-building.
  5. Allotment & listing of new shares: T+6 settlement from issue close; new shares rank pari passu with existing equity.

A diluted FPO (fresh issue) increases total share count, reducing EPS (earnings per share) for existing shareholders. An OFS-only FPO does not change the company's share capital — proceeds go to selling shareholders, not the company.

Tax Treatment

Tax treatment mirrors IPO shares — allotted FPO shares are capital assets from allotment date:

  • STCG: Sale within 12 months — 20% under Section 111A.
  • LTCG: Sale after 12 months — 12.5% above ₹1.25 lakh per annum under Section 112A (Finance Act 2024).
  • Dilution impact: No direct tax event for existing shareholders at the time of FPO dilution — EPS dilution is economic, not a taxable transfer.
  • Capital reduction via FPO proceeds: If company uses FPO proceeds to reduce debt, the resulting EPS improvement does not trigger any separate tax.

Investor Protection

  • Floor price rule: ICDR Reg. 10A prevents FPOs from being priced at deep discounts to market — floor price anchored to 2-week and 26-week volume-weighted averages.
  • Pre-issue advertisement: Mandatory newspaper advertisement with issue details 2 working days before opening.
  • Lock-in on promoter shares: Same promoter lock-in rules as IPO apply to pre-FPO shares held by promoters (ICDR Reg. 167).
  • Conflict of interest disclosure: If the FPO's OFS component involves promoters exiting, this must be prominently disclosed in the RHP risk factors.
  • ASBA protection: Same fund-blocking mechanism as IPO applies.

Worked Example

Yes Bank FPO — July 2020: Following the RBI-led reconstruction scheme of March 2020, Yes Bank raised ₹15,000 crore via an FPO at ₹12–₹13 per share — a significant discount to its pre-crisis levels but aligned with market price at the time.

  • Issue size: ₹15,000 crore (fresh issue only; no OFS component).
  • Price band: ₹12–₹13 (market was trading ~₹16–₹18 pre-announcement).
  • Subscription: Approximately 95% subscribed at issue close; QIBs drove most of the demand.
  • Objective: Replenish capital after reconstruction writedowns; restore regulatory capital ratios.
  • Post-listing: Shares drifted toward the issue price from elevated secondary market levels as new supply arrived.

The Yes Bank FPO illustrates how FPOs are used for capital restoration after distress and how a lower-than-market price band is used to ensure full subscription in uncertain conditions.

See Also

Primary Source

SEBI ICDR Regulations 2018, Chapter V — sebi.gov.in

MintByte is registered with SEBI as an Investment Adviser (ARN-314872) and APMI (APRN-01658). This glossary entry is for educational purposes only and does not constitute investment advice. Subscription levels and listing performance of specific FPOs are not indicative of future results for any other offering.

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