CCEA approves PGCIL follow-on public offer

November 9, 2013

Providing a significant impetus to the government’s disinvestment programme to raise Rs.40,000 crore in this fiscal (2013-14), Cabinet Committee on Economic Affairs (CCEA) gave its approval for the Follow-on Public Offer (FPO) of Power Grid Corporation of India Limited (PGCIL) to raise about Rs.7,500 crore.
PGCIL will issue its 17% stake through FPO. This includes 13% fresh equity and 4% stake sale by the government. The government will sell 18.51 crore shares in the public sector company.
The company will issue fresh 60.18 crore shares through the offer. At current market valuations, the FPO is likely to raise close to Rs.7,500 crore. After FPO, the government shareholding in the company will reduce to 57.89% from 69.42%. The company may fetch close to Rs.5,700 crore while the government will get an estimated Rs.1,700 crore.

What is Follow-on Public Offer (FPO)?

It is an issuing of shares to investors by a public company that is already listed on an exchange. An FPO is essentially a stock issue of supplementary shares made by a company that is already publicly listed and has gone through the IPO process.

How FPO is different from IPO?

FPOs should not be confused with IPOs, as IPOs are the Initial Public Offering of equity to the public while FPOs are supplemantary issues made after a company has been established on an exchange.

Types of FPOs:

It can be of two types or mixture of the two:

  1. Dilutive FPO
  2. Non-dilutive
How FPO is different from Secondary Offering?

A secondary offering is an offering of securities by a shareholder of the company (as opposed to the company itself, which is a primary offering). A follow on offering is preceded by release of prospectus similar to IPO: Follow-on Public Offer (FPO).
A secondary market offering is a registered offering of a large block of a security that has been previously issued to the public. The blocks being offered may have been held by large investors or institutions, and proceeds of the sale go to those holders, not the issuing company. A secondary offering is not dilutive to existing shareholders since no new shares are created. The proceeds from the sale of the securities do not benefit the issuing company in any way.

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