INDIAN ECONMOY- SEBI

Date: January 11, 2015

IPO;FPO;SEBI

WHAT DO YOU MEAN BY INITIAL PUBLIC OFFERING AND FOLLOW ON PUBLIC OFFERING? DIFFERENCE BETWEEN IPO AND FPO. WHAT IS E-IPO? WHAT ARE THE RECENTLY PROPOSED NORMS BY SEBI?

Answer-

The IPO(Initial public offer) is the process by which a private company can go public by sale of its stocks to general public,in other words the first sale of shares is through IPO. It could be a new, young company or an old company which decides to be listed on an exchange and hence goes public.Companies can raise equity capital with the help of an IPO by issuing new shares to the public or the existing shareholders can sell their shares to the public without raising any fresh capital.

FPO (Follow on Public Offer) is a process by which a company, which is already listed on an exchange, issues new shares to the investors or the existing shareholders, usually the promoters. FPO is used by companies to diversify their equity base.A company brings out an FPO for further growth. If a company is coming out with an FPO, it also means that the company is short of funds. FPO is raised for more funds or money or for establishing new projects.

 IPO Vs FPO:

Base of Difference                                                  IPO                                                                    FPO

Order of occurence                         Initial Public Offering is the first sale                                 The Follow on Public Offering is the second sale for expanding businesses

Profitability .                                              More Profitable                                                        Less Profitable

Risk                                         IPOs are risky investments as an individual investor                The risk is lower as an investor already has an idea about the

                                              cannot predict what will happen to the initial trading.                           investment and future growth of the company.

 

In IPO and FPO, the company never repays the capital but gives the shareholders a right to future profits of the company.

SEBI's Initiative-

Recently, SEBI proposed e-IPO norms, where investors can bid for shares through Internet and eventually on mobiles to boost fund raising from markets. When any company is proposing to issue capital to public through the on-line system of the stock exchange for offer of securities it is called e-IPO.

Under the new norms, SEBI has proposed to drastically cut the timeline for listing of shares within 2-3 days of the IPO, as against 12 days currently.The fast-track route of raising capital has been proposed for companies having public shareholding market valuation of as low as Rs.250 crore, as against Rs.3,000 crore at present. The public sector entities can tap the ‘fast-track’ route even without complying to this minimum average market value limit, provided they meet other conditions.

Under the ‘fast-track’ route, a listed company would not be required to file any draft offer document for its FPO or rights issue and it can proceed with the fund-raising programme without necessarily getting ‘observations’ from SEBI.The proposed moves are part of efforts to simplify the process of IPOs, lowering their costs and helping companies reach more retail investors in small towns.