Difference between IPO, OFS, and FPO stock market

IPO,OFS and FPO
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Related this-: Difference between IPO, OFS, and FPO


Table of content-:

  •  IPO

  •  rights issue

  •  Offer for sale-OFS

  •  Follow on Public Offer-FPO

  • Difference between OFS and FPO


 1. IPO IPO


 Through IPO, the company comes for the first time to be listed in the market, after being listed in the stock market, the stock can be bought and sold every day.  In IPO, the promoters of the company sell some percentage of the shares of the company to the general public.

 The main reason for bringing an IPO is to raise capital for the company.  With this capital, the company can expand itself.  Through IPO, the way for the old investors of the company to get out of their investment becomes clear.  Even after the IPO comes and the sale of shares of the company starts in the secondary market, the promoter may need more capital.  For which he has three avenues: Rights issue, Offer for sale, Follow on public offer.


2. Rights Issue


 The promoter can add more capital by giving more new shares to its existing shareholders.  In the rights issue, these new shares are given at a price lower than the current market price.  New shares are given to the old shareholders in proportion to the number of shares held by them.  For example, in a rights issue of 4:1, for every four shares, they are given an additional share.  This is a good way to raise capital, but in this, the company has very few people, for the old shareholders, their earlier share price gets reduced.

 An example of a rights issue is South Indian Bank which did a 1:3 issue.  In this, the existing shareholders were given shares at a price of Rs 14, which was 30 percent below the market price.  The bank gave 45 lakh shares to its shareholders.


 3. Offer for Sale-OFS


 Unlike a rights issue, the promoter can bring a secondary issue of shares for the entire market.  It does not have the existing shareholder rule.  Exchanges provide the facility of selling through brokers for OFS.  Exchanges allow this offer only when the promoters want to sell their shares and also the public shareholding limit is 25%.


 In OFS there is a floor price which the company decides.  Above this price, both retail and non-retail investors can place bids.  Shares are allotted in all the bids above the cut-off price.  Exchange trading settles these shares in the Demat account in +1 day.


 4. Follow on Public Offer-FPO


 The main objective of FPO is also to raise capital.  This is also a way to raise capital after the shares are listed but a different process is followed for the same application and allotment.  Shares can be diluted in FPO and new shares can also be issued which can be allotted to the investors.  Like IPO, FPO also requires a merchant banker who prepares a red hearing prospectus and gives it to SEBI and after SEBI approval, the bidding can be started.  The time taken for bidding is 3-5 days.  After book building, when the cut-off price is fixed, then the shares are allotted.  FPOs are rarely used to raise capital since the OFS route was opened in 2012 as the process would have been a bit lengthy.

 The company fixes a price band and the FPO is advertised.  Investors who want to invest money in this can invest money in it through ASBA or through any bank branch.  The cut-off price is decided at the end of the bidding process. The cut-off price is decided on the basis of the demand for the shares.  Then the shares are allotted weeks and they are listed on the stock exchange.

5. Difference between OFS and FPO

  OFS is used to reduce the shareholding of the promoter while FPO is used to raise capital for a new project.


 In FPO the number of shares increases so the shareholding pattern changes whereas in OFS the number of shares does not change.

 According to the market capitalization, only the above 200 companies get the facility to raise money from OFS, whereas all the companies can raise money through FPO.

 Every company likes to raise money from OFS.

 

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1 Comments

  1. This article really helpful and explained very well.So i am really thankful to you for sharing keep it up.
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