Fresh Issue in IPO - Complete Guide

A Fresh Issue is a method by which a company raises new capital by issuing new shares to investors. It is commonly used in IPOs, FPOs, and rights issues and directly increases the company’s share capital.

Below is a complete and structured explanation:

1. Meaning of Fresh Issue

A Fresh Issue refers to the sale of newly created shares by a company to the public or existing shareholders to raise funds.

• Shares are issued for the first time
• Money goes directly to the company
• Share capital increases
• Existing shareholders’ ownership gets diluted

2. Purpose of Fresh Issue

Companies raise funds through fresh issues to:

• Expand business operations
• Set up new projects or plants
• Reduce debt
• Meet working capital needs
• Fund acquisitions or R&D

3. Where Fresh Issue Is Used

Fresh issues are part of:

• IPO (Initial Public Offering)
• FPO (Follow-on Public Offer)
• Rights Issue
• Qualified Institutional Placement (QIP)

4. How Fresh Issue Works (Process)

1. Company decides number of new shares to issue
2. Offer price or price band is fixed
3. Investors apply for shares
4. Shares are allotted
5. Funds are transferred to the company
6. Shares are listed or credited to investors

5. Pricing of Fresh Issue

• Price may be fixed or via book building
• In IPOs, a price band is provided
• Final price depends on investor demand

6. Impact on Shareholding

Before Fresh Issue

• Promoter holding: 60%
• Public holding: 40%

After Fresh Issue

• Promoter holding: 55% (diluted)
• Public holding: 45%

👉 Dilution occurs because new shares are added to total share capital.

7. Advantages of Fresh Issue

For the Company

• Raises funds for growth
• Improves financial strength
• Reduces reliance on debt

For Investors

• Opportunity to invest directly in company growth
• Transparent pricing mechanism
• Can improve long-term valuation

8. Disadvantages of Fresh Issue

• Dilution of EPS (Earnings Per Share)
• Reduced promoter control
• Risk if funds are not used efficiently

9. Fresh Issue vs Offer for Sale (OFS)

10. Example

If a company issues 1 crore new shares at ₹100 each:

• Funds raised = ₹100 crore
• Money goes to the company
• Total outstanding shares increase

11. Regulatory Authority (India)

• Regulated by SEBI
• Issued through NSE / BSE
• Disclosure in Red Herring Prospectus (RHP)

12. In Simple Words

A Fresh Issue is when a company creates and sells new shares to raise money for business growth, causing dilution of existing ownership.

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