What is an IPO?

What do successful companies like BDO, Ayala Corporation, Aboitiz Equity

Ventures, BPI, and San Miguel Corporation all have in common? 

They are all publicly traded. 

When a company starts its operations, they raise small funds from venture
capitalists. Eventually, as the company starts to grow, the entity raises more
capital in the form of equities and debts.

An IPO or Initial Public Offering enables companies to raise more funds

from public investors. A company raises funds by allotting shares of
ownership to the public for the first time, it is called an IPO.

This form of equity financing involves founders giving up a percentage of their

ownership in exchange for more capital so they can avoid loan financing
options. 

Through an IPO, a company shifts from being privately owned to publicly

traded and owned by institutional and retail investors. Hence, when a
company files an IPO, it is also called “going public.”

What is an FPO?
FPO stands for Follow on Public Offering. Is a process by which a listed
company on the stock exchange can raise capital by offering new shares to
the investors or the existing shareholders of the company.

When the shares are offered for sale for consecutive times it is called FPO.

FPO is raised for these two purposes:

• To raise additional capital

• To reduce existing debt

How does IPO/FPO works?

Let’s say Mr. Zee owns Zee Bookstore in the southern parts of India. 

Since the last 20 years, Zee Bookstore has become a strong brand as he has
a unique collection of ancient books.

Mr. Zee thinks of expanding his business and decides to raise money by
issuing shares of Zee bookstore. As a result, he can open more stores in
Northern India where more people can explore his collection.

With the money raised through the IPO (Initial Public offering), Mr. Zee
builds up 4 stores in 4 major cities and his business becomes more profitable
ever since. 

After 3 years, Zee Bookstore has a strong brand image in the southern and
northern parts of India and Mr. Zee thinks to expand his business in Eastern
part of India as well.

But Mr. Zee had already raised fresh capital through an IPO 3 years back!

So, He decides to issue a new shares to the individual investors and raise
more capital in the form of FPO (Follow on Public Offering).

As Zee Bookstore is already listed on the stock exchange, he will have to

issue additional shares of the company which will diversify its capital base.

Difference Between IPO and FPO

1. IPO vs FPO – Objective
The objective of an IPO is to raise capital by opening up ownership of shares
of the company to the public.

After an IPO, as the company grows, it may need more funds for expansion
that’s when FPOs are issued.

The objective of an FPO is to diversify public ownership

2. IPO vs FPO – Performance

Another key difference between IPO and FPO is how much an investor knows
about the company before buying allotted shares.

In case of an IPO, all that investors have to go by is the company’s red herring
prospectus. Most investors prefer to subscribe to an IPO based on market
interest in the company, management, debt on the books, etc. Here investors
have no guidance or track record about the company.

In the case of an FPO, investors have a track record of how the company has
performed and previously what the market interest was like. The sales of
equity stakes can be a good indicator of whether or not the stock is worth
buying.

3. IPO Vs. FPO – Profitability

Investing in an IPO is relatively riskier but they can be more profitable than
FPOs as they participate in the initial growth of the company.

FPOs are relatively less risky than IPOs since there is more transparency and
available information about the company with the investors. Investors can
study the company’s past performance and make assumptions about the
company’s growth prospects before investing. FPOs are relatively less
profitable than IPOs as in the FPO stage, the company is stabilizing.

Comparison Chart Between IPO and FPO

Characteristics IPOs FPOs

 A private company A company which is listed on the
sells equity shares to stock exchange can bring up
Meaning
the public for the first FPOs after the launch of IPOs for
time.  subsequent public investment.

Full-Form Initial Public Offering Follow-on Public Offering

Issuer Unlisted private firms Listed public limited companies

Raising capital for the

Raising funds through subsequent
Objective first time through the
public investments.
general public.

Risk Higher than FPO Lower than IPO

Profit Higher than FPO Lower than IPO

Less predictable than

Predictability More predictable than IPOs
FPOs

Mazagon Dock
Example Of Shipbuilders Limited,
Yes Bank, ITI Ltd 
Company’s Antony Waste Handling
Cell Ltd.

Why Do Companies Go Public?

Such as, BDO, Ayala Corporation, Aboitiz Equity Ventures, BPI, and San
Miguel Corporation. Primarily, these corporations sell stocks to generate
capital for their business
Raise capital for business expansion
An IPO is one of the ways up-and-coming companies use other people’s
money to fund their business growth. 

When a small company has an IPO, it means its business has become
successful enough to have high growth potential. With expansion comes the
need for additional capital. And to generate capital, the company goes public
so that it can reach as many investors as possible. 

Funds raised through IPOs are usually spent on purchasing or upgrading

equipment, research and development, diversification of products and
services, and expansion into a new market or a new line of business.

For example;

The Converge IPO is intended to raise capital for accelerating the telco’s fiber
network rollout all over the Philippines (Currently, Converge service areas are
concentrated only in Luzon). 

Benefits of IPO to Investors

Invest early in a fast-growing company

When you buy an IPO stock for long-term investment, you get the opportunity
to increase your wealth as the company grows over time. If the company
performs well, investors will benefit from its success, too.

Maximize profits 

Buying low and selling high is the biggest appeal of IPO investment.
Historically, IPO shares are traded higher than their offering price upon listing.
This is often the case for emerging companies with a huge potential for
growth. 
The value of such shares can rapidly increase in value if the company
performs successfully. For IPO investors, this means maximized profits.

Achieve long-term financial goals

Some investors buy IPO shares for short-term trading. Once the share price
rises sharply or when they’ve hit their target returns, traders sell their shares
to cash in on their profits.

IPO stocks are suitable as long-term investments, too, if they come from a
company that is expected to grow tremendously over time. Using this IPO
investment strategy can help you meet long-term goals like buying a home
or building your retirement fund.

Get access to the same information as bigger investors

With IPO investing, small and retail investors are on a level playing field with
institutional investors, insiders, and analysts who have more access to a
company’s information in the secondary markets where regular stocks are
traded.

The only source of information for all types of IPO investors is the
company’s prospectus, which is a formal document where IPO details can be
found. 

Process for becoming a capital investor;

For investing IPOs/FPOs

1. First requirement is the PAN (Primary Account Numbers). Primary account

numbers are also called payment card numbers as they are found on payment
cards like credit and debit cards.

2. The bank account.

3. The demat account (shares are credited/debited in an electronic mode)

which can be opened with a registered depository participants.

4. Select a broker for investing in the secondary market complete the forms of
agreement and enter to trading account.
Conclusion:
To sum up, IPOs are more profitable than FPOs as they are riskier and there
is no way of knowing how an IPO will perform. And it is essential to dig deeper
into the prospects and fundamentals of the company.

What is a Shareholder?

A shareholder is a person in the company, or in the institution that owns at

least one share of a company’s stock or in a mutual fund.

Shareholders essentially own that company, which comes with certain rights
and responsibilities. This type of ownership allows them to reap the benefits of
a business success.

These rewards come in the form of increased stock valuations or financial

profits distributed as dividends. Conversely, when a company loses money,
the share price invariably drops, which can cause shareholders to lose money
or suffer declines in their portfolios.

Individual Rights of the Shareholders

According to a corporation’s charter and by laws, shareholders traditionally
enjoy the following rights:

 The right to inspect the company’s book and records.

 The power to sue the corporation for the misdeeds of its directors and/or

officers.
  The right to vote on key corporate matters, such as naming board

directors deciding whether or not to green-light potential mergers.

 The entitlement to receive dividends.

 The right to attend annual meetings, either in person or via conference

calls.

 The right to vote on critical matters by proxy, either through mail-in

ballots or online voting platforms if they’re unable to attend the voting

meetings in person. The right to claim a proportionate of proceeds if a

company liquidates its assets.

 The right to transfer ownership

Group Rights of the Shareholders

 The right to determine the objectives and policies

 The right to Discuss, approve and disapprove work done by elective

representative

 The right to Discuss the annual report

 The rights to elect directors

 The right to appoint auditors

  The right of declaration of dividend.

 A shareholder is any person, company, or institution that owns shares in

a company’s stock.

Summary;

 A shareholder is any person, company, or institution that owns shares in

a company’s stock.

 A company shareholder can hold as little as one share.

 Shareholder are subject to capital gain (or losses) and/or dividend

payments as residual claimants on a firm’s profits.

 Shareholders also enjoy certain rights such as voting at shareholder

meetings to approve the members of the board of directors, dividend

distributions, or merges.

 In case of bankruptcy, shareholders can lose up to their entire

investment.
Thank you for Listening!