What is FPO? Further Public Offerings in Nepal
Companies listed on the domestic stock market from now onwards must follow a set of rules before putting the price tag on stocks to be floated through further public offering (FPO) (Follow on Public Offering).
Issuing a directive today (August 13, 2016), the Securities Board of Nepal (SEBON), the securities market regulator, said the value of shares to be issued through FPO must be determined based on capitalised earnings, net worth per share, average closing price of 180 days and discounted cash flow.
“Every company must calculate shares prices based on these methods. The average of these outcomes should be used as the best price,” - says the directive.
SEBON came up with the directive after listed companies started valuating shares for FPO in an arbitrary manner.
FPO is a means of raising capital from the market and is launched by listed companies that have already offered shares in the primary market through initial public offering (IPO).
A follow-on public offer (FPO) 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. -Investopedia Says
SEBON’s Securities Registration and Issue Regulation says listed companies that have generated net profit in the last two of five years and whose net worth per share is higher than paid-up value per share can launch FPO.
Generally, listed companies add premium to shares while launching FPO. This means stocks, with a face value of Rs 100 floated through IPO, may cost way more during FPOs.
Although SEBON’s regulation says that a listed company needs to justify the reason for adding premium to shares being floated through FPO, it does not explicitly point out factors that need to be taken into consideration. The directive issued today has made that clear.
The directive also says listed firms must submit application for FPO at SEBON within four months of getting an approval from the general meeting of shareholders.
Earlier in June, SEBON had intervened in the FPO launch process of Nepal Life Insurance after the company decided to float 3.95 million units of shares at Rs 2,951 each. Citing the company had not taken permission from the regulator to issue shares under FPO and premium added to shares were inflated, SEBON had suspended its share transaction on stock market for around 20 days.
It had then formed a committee to devise a standard way of pricing shares to be floated through FPO. Today’s directive was issued based on a report submitted by the committee.
A version of this article appears in print on August 13, 2016 of The Himalayan Times.