Through which an already listed company can issue fresh shares in the market to raise more equity capital. Here the issue price is decided based on the current trading price which is normally kept a bit lower than the current market price to make people subscribe for it.
Basic Characteristics of FPO
Share price is fixed based on the current market price and kept a bit lower than the current market price. If the price is kept equal to or higher than the current market price, then the investors will prefer to buy the shares from the market itself rather than subscribing in the FPO.
Company prefers FPO to raise money during the bull market as it makes the valuation more attractive with the current market price being higher.
India, companies has to file the DRHP (Draft Red Hearing Prospectus) to the market regulator SEBI to be eligible for the IPO. In US, SEC (Securities and Exchange Commission) regulates all the IPOs.
Like the IPO process, Companies have to maintain a fixed quota for every type of investors like Retail, HNI (High Net worth Individuals), QIB (Qualified Institutional Buyers) to raise money from the market so that everyone get a chance to subscribe for the FPO.
Like the IPO process, the FPO process is also driven by the book-building process where everyone can see the status of subscription or the demand of the particular during the time the IPO is open for subscription.