IREDA Plans FPO to Bolster Growth

GS Paper III Economy

Context

Indian Renewable Energy Development Agency (IREDA) is planning to launch a follow-on public offering (FPO) amid rising financing opportunities in the energy transition space and to bolster the company’s growth.

Recently, the company set up a wholly-owned subsidiary IREDA Global Green Energy Finance IFSC Ltd, at the International Financial Services Centre (IFSC), GIFT City, Gujarat.
Last month it also got the Navratna status.
Ireda launched its Initial Public Offering (IPO) in December 2023.
The net worth of the Ireda grew 44.2% over the last financial year to reach Rs 8,559.43 crore, as of March 31, 2024.
It is aiming to raise Rs 24,200 crore in this financial year.
It is currently the only public sector NBFC focused on the green energy sector.

IREDA

Refers: FPO is the way by which a company that is already listed on a stock exchange can raise funds from the public.
- FPOs are also known as secondary offerings.
Types of FPO: Depending on how ownership is being given to new subscribers, FPO is classified into two types- a Diluted FPO or a Non-Diluted FPO.

For Expansion: A company can use FPO to raise funds to finance its expansion plans and future projects.
To Reduce Debt: If a company is overleveraged, it can decide to reduce its debt using the funds raised through FPO.
- However, these two needs will be met only when the raised funds are coming in hands of the company. This happens in the case of Diluted FPO.
Increase the Public Shareholding: One of the primary reasons for having a Non-diluted FPO is when a company wants to increase the public shareholding in the company. A higher public shareholding facilitates greater public participation, which in turn leads to better price discovery of the shares.
- In the case of Non-diluted FPO, the funds raised are distributed to the existing shareholders selling their shares.

FPO must be sounding similar to an Initial Public Offering (IPO), however, they are different.
When a company raises funds from the public for the first time and then gets listed it is called an IPO. Whereas when a company that is already listed on the exchange raises funds from the public it is called FPO. It means, FPO comes after an IPO.
Compared to FPO, the risk factors involved while investing in an IPO are far higher.

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