We have already learned what an IPO, FPO, and Rights Issue is. But many beginner investors have doubts about the difference between FPO & Rights Issue. And we don’t blame them because the concept of FPO vs Rights Issue is quite confusing. So we thought to write an article to clarify these differences. Hence FPO vs Rights Issue: Difference between FPO and Rights Issue.
So.. What is FPO?
Usually, existing stockholders accuse the promoters/management of a company for raising money by issue FPO, if the FPO is dilutive in nature and not rewarding the shareholders adequately. But if the management is good and uses non-dilutive FPO, then the reality is just the opposite. [Read More: What is Dilutive and Non-Dilutive FPO?]
The funds raised enable the company to pay debts, act on its growth strategy and hence benefiting the stakeholders.
FPO is offered at a discounted price than the current market price of that company stock.
So an FPO is actually a good thing for the minority stockholders.
So.. What is Rights Issue?
Rights Issue: Also Called as Rights Offer.
It is almost same like an FPO but only offered to the existing shareholders.
Here also fresh equity shares of an already listed company are offered but to existing shareholders.
The fresh equity is always offered at a discounted price from the current market price.
Now the Difference Between FPO and Rights Issue:
In the rights issue or rights offer, only the existing shareholders are invited to subscribe. So the ownership pattern of the company does not get significantly altered.
In Rights Issue, the allotment is done in proportion to the existing number of shareholding on the record date. So there is no chance of over-subscription like an FPO and hence allotment is guaranteed.
The FPO is usually offered at a discounted rate (more or less 5% discount) so that the existing shareholder’s interests do not get hurt. In Rights Issue, the offered discount percentage is usually more than FPO discount. It is thus to encourage subscription and to enable the existing shareholders to save taxes by booking paper losses.
FPO vs Rights Issue - Comparison Chart:
The following table shows the differences between FPO and Rights Issue in a clearer format.
|Full Form||Follow-On Public Offering||Rights Issue or Rights Offer|
|Listing Status||Already Listed on Stock Exchange||Already Listed on Stock Exchange|
|Profit||Considered as profitable||Considered more profitable than FPO|
|Raising Capital||Subsequent public contribution||Subsequent contribution from existing shareholders|
|Types||Dilutive and Non-Dilutive||Rights Issue|
|Issuer||Publicly Listed Company||Publicly Listed Company|
|Objective||Raising capital from public investment||Raising capital from existing shareholders|
|Ownership Structure||Major Change||Minor or No Change|
|Share Allotment||Not Guaranteed, as over-subscription may occur.||Guaranteed in Full|
|Price Discount||Comparatively Lower||Comparatively Higher|
FPO vs Rights Issue - The Conclusion:
The difference between FPO and Rights Issue (FPO vs Rights Issue) can be summarized as follows:
FPO is Follow-On public offering that is the means to offer additional shares of an already listed company to the general public. Anyone from the general public can participate to purchase this type of shares. Hence the company’s ownership structure undergoes a major change.
Rights Issue is another means of offering additional shares of an already listed company, but this time only to the existing shareholders of that company. Only existing shareholders of the company can participate in this type of issue, and shares are allocated in proportion to the current number of holding. Here the company’s ownership structure is not changed unless any existing shareholder sells the rights on the secondary market (Stock Exchange).
Hope you have enjoyed the above article on the difference between FPO vs Rights Issue. Be with us to explore forex trading, stocks trading, and other money-making opportunities.
Leave us some comments if you have any questions about the difference between FPO and Rights Issue. Also let us know your experience of investing in IPO, FPO, and Rights Issue.