What is a Follow-On Public Offer?
A follow-on public offer is an offering of shares made to general public, after the Initial Public Offer (IPO).
How is it different from a Secondary Public Offering?
A secondary public offer does not dilute the value of shares, since additional shares are not being created. In a Follow-On Public offer, the company itself places new shares in the market, hence, it dilutes the value of existing shares.
Why a FPO (Follow-On Public Offer) by YesBank at this stage?
It will attract new investors at half the price of the current market price, and reduce the burden of investor banks to pump in more money.
The target set needs an issue of shares worth approximately Rs. 1250 crores. The existing base is around Rs.1255 crores. It implies a 50% dilution in the equity base for existing shareholders.
Floor price- Rs12
Cap price- Rs13
Lot- 1000 shares
Employee discount- Rs1 per share
FPO size- Rs 15000 crore
Almost 50% to current market price of Rs 25–26 per share.
How to apply
Here are the few ways through which you can apply for the FPO-Net Banking- Under the ASBA section of your bank account, you will find YES Bank once it opens for FPO. The procedure would be the same as an IPO
Broker- Brokers like Zerodha, Kotak Sec etc. provide an option to apply online & make payment via Net Banking or UPI. Money would be blocked the same way as in IPO.
Offline Form- You can download & print the form once it is available on the link mentioned below
Fill it & submit it to your broker or Bank before the last date.
DO I RECOMMEND THE FPO?
NO.YesBank will not be a part of my core- investment portfolio. Even if it turns out a multi-bagger from here.
The reasoning is explained here:
- Bank would not fail in India. 100% agreed.
2. BUT consider this-To grow business they need more capital and more deposits.
3. They have to raise capital at lower price.
4. They have to give HIGHER RATES to attract more deposits, which has always been their strategy in the past. YesBank was the only bank offering an interest rate of 7% p.a. of savings accounts in 2012. Consequently, the cost of funds is high.
5. If they lend at lower rates to grow their book, then the interest spread and margin to absorb shocks is low.
6. If they lend at very high rates as compared, they are back to previous road of very high risk and NPA’s. The market is not likely to bear high lending rates in the post-COVID scenario.
7. Healthy functioning will need spreading out from a select client portfolio of high net worth clients to a mass retail base. It is yet to be seen how they strategise to regain customer trust.
I would avoid it in my core portfolio definitely.
If you are keen on investing, the recommendation is to invest out of your entertainment fund (the amount you spend for partying or entertainment, and which you might be saving in the lockdown) or only invest that much amount which you can afford to lose completely
You can always speculate with your ENTERTAINMENT FUND (amount which you can afford to lose fully).
Hey there! Thanks for investing your time in reading this piece! Really appreciated. 🙂
If somehow you cannot devote time to your investments, I can be of your help. Connect for your secured financial future.
Happy investing !
DISCLOSURE- NOT AN INVESTMENT RECOMMENDATION. THIS IS JUST MY VIEW
AUTHOR: Yash Seth, MoneyCraft
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