By Urvashi Valecha
Follow on public offerings (FPOs), a capital markets fund raising method, seems to have fallen out of favour as listed companies are increasingly opting for qualified institutional placement (QIPs) and other modes to raise funds, given the easier procedural requirements. Both QIPs and FPOs are fund raising methods where a listed company can tap new investors.
In 2019, listed companies raised Rs 35,238.14 crore through QIPs, as opposed to no funds raised through FPOs. Between 2016 and 2019, funds raised via QIPs stood at Rs 1.17 lakh crore as opposed to nil raised using FPOs. The last FPO happened way back in 2014, according to data from Prime Database.
Till the early 2000s, FPOs remained a common method for raising money. The trend changed post the introduction of QIPs in 2006. There have been 12 FPOs since 2010 and a majority of them belong to PSEs. The last known FPO to hit the capital market was conducted by Engineer’s India (EIL), a public sector enterprise (PSE), with an issue size of Rs 497.32 crore. Tata Steel was the last private company to have gone for an FPO in 2011 with an issue size of Rs 3,477 crore. Recently, ITI, a PSE, had announced an FPO to raise Rs 1,600 crore which was later withdrawn in February citing ‘prevailing market conditions.’ The issue had been extended twice but it remained undersubscribed.
UR Bhat, director at Dalton Capital Advisors (India), said FPOs require a lot of effort to access retail investors, which means high costs of distribution and conducting multiple roadshows at several locations.
With an FPO, the company can include a broader spectrum of investors comprising retail, high net-worth individuals and institutional investors. In a QIP, only institutional investors can take part.
Anay Khare, managing director-corporate finance-investment banking, Axis Capital said a price element is a significant factor for a company that decides to go for an FPO.
“The period from filing the offer document with registrar of companies (RoC) and till offer closure is the period of price risk in an FPO. If the price in the secondary market becomes cheaper than the FPO price, then there will be no takers for the offer. On the other hand, in a QIP which is a private placement, the company does not require RoC filing or book-building and thus has a low price risk,” Khare explained.
According to Sebi ICDR regulations, for a QIP that is valued at Rs 250 crore, a minimum of two institutional buyers are required. Additionally, with shorter timelines involved and no review by Sebi or registrar of companies, QIPs are more efficient for companies to raise money.