Initial Public Offerings (IPO)
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What are the different types of Public Issue?
When a company raises funds by selling or issuing its equity shares to the public through an offer document it is called a public issue. Public Issues can further be classified into Initial public offer (IPO) and Further / Follow on public offer (FPO).
Types of Public Issue
Initial Public Offerings (IPO): IPO is a type of issue where an unlisted company raises capital by making a fresh issue of securities or offering its existing securities for sale to the public for the first time.
Further Public Offer (FPO) / Follow-on Public Offer (FPO): When a listed company wants additional capital, it makes either a fresh issue of securities or an offer for sale of existing securities to the public it is called a Follow-on Public Offer (FPO). For instance, Yes Bank launched FPO (July 15th - July 17th 2020) to recover from huge bad debt and generate funds from the share sale to enhance the capital base. It was subscribed 0.93 times.
Offer for Sale (OFS): Institutional investors like venture funds, private equity funds etc. invest in a company at its nascent stage. Once the company grows bigger these investors sell their shares to the public through the issue of offer document and subsequently shares get listed on the stock exchange. Offer for sale (OFS) is also a special mechanism through which the promoters can sell their stake in the market. Only promoters or shareholders holding more than 10% of the share capital in a company can come up with such an issue. Both retail and institutional investors can invest in an OFS and buy shares of the Company. The Government of India sold its 15% stake in Hindustan Aeronautics (HAL) in August 2020. The ₹5,000 crore offer for sale (OFS) was fully subscribed. The OFS received an application for 5.21 crore shares as against the issue size of 5.01 crore shares.
Therefore, we can conclude majorly there are two types of public issues- Initial Public Offering (IPO) and Further Public offering (FPO). Now, in the next section, let us discuss some primary reasons or benefits behind companies' floating IPOs.