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Book building

  1. 1. Good Morning Book Building Nikhil B
  2. 2. Book Building: Book Building is the process of determining the price at which an Initial Public Offering will be offered. Book building refers to the process of generating, capturing, and recording investor demand for shares during an Initial Public Offering (IPO), or other securities during their issuance process, in order to support efficient price discovery.
  3. 3. “Book Building” means a process undertaken by which a demand for the securities proposed to be issued by a body corporate is elicited and built up and the price for such securities is assessed for the determination of the quantum of such securities to be issued by means of a notice, circular, advertisement, document or information memoranda or offer document. Book building” is a method of marketing the shares of a company whereby the quantum and the price of the securities to be issued will be decided on the basis of the ‘bids’ received from the prospective shareholders by the lead merchant bankers. According to this method, share prices are determined on the basis of real demand for the shares at various price levels in the market.
  4. 4. Defination SEBI guidelines, 1995 defined book-building as “a process undertaken by which a demand for the securities proposed to be issued by a body of corporate is elicited and built up and the price for such securities is assessed for the determination of the quantum of such securities to be issued by means of a notice, circular, advertisement, document or information memoranda or offer document”.
  5. 5. Who Decides Price Band? It may be understood that the regulatory mechanism does not play a role in setting the price for issues. It is up to the company to decide on the price or the price band, in consultation with Merchant Bankers. The basis of issue price is disclosed in the offer document. The issuer is required to disclose in detail about the qualitative and quantitative factors justifying the issue price.
  6. 6. The Issuer who is planning an offer nominates lead merchant banker(s) as 'book runners'. • The Issuer specifies the number of securities to be issued and the price band for the bids. • The Issuer also appoints syndicate members with whom orders are to be placed by the investors. • The syndicate members input the orders into an 'electronic book'. This process is called 'bidding' and is similar to open auction. • The book normally remains open for a period of 5 days. • Bids have to be entered within the specified price band. • Bids can be revised by the bidders before the book closes.
  7. 7. • On the close of the book building period, the book runners evaluate the bids on the basis of the demand at various price levels. • The book runners and the Issuer decide the final price at which the securities shall be issued. • Generally, the number of shares are fixed, the issue size gets frozen based on the final price per share. • Allocation of securities is made to the successful bidders. The rest get refund orders.
  8. 8. GUIDELINES BY SEBI • On the recommendations of Malegam committee, The concept of Book Building assumed significance in India as SEBI approved, with effect from November 1, 1995, the use of the process in pricing new issues. • SEBI issued the guidelines under which the option of 100%book- building was available to only those issuer companies which are to make an issue of capital of and above Rs. 100crore. • These guidelines were modified in 1998-99.The ceiling ofissue size was reduced to Rs. 25crore. • SEBI modified book-building norms for public issues in 1999 and allowed the issuer to choose either the existing or the modified mode of book building.
  9. 9. Modified Guidelines • Compulsory display of demand at the terminals was madeoptional. • The reservation of 15% of the issue size for individualinvestors could be clubbed with fixed price offer. • The issuer was allowed to disclose either the issue size or the number of securities being offered. • The allotment of the book built portion was required to bemade in Demat mode only. • In April 2000, SEBI modified guidelines for the 100% book- building process. i.e. a maximum of 60% of the issue was allowed to Institutional investors and atleast 15% to non- institutional investors who had applied for more than 1,000 share
  10. 10. Types of Book Building The Companies are bound to adhere to the SEBI’s guidelines for book building offers in the following manner:  75% book building  100% book building
  11. 11. 75 per cent Book-Building Process Under this process 25 per cent of the issue is to be sold at a fixed price and the balance of 75 per cent through the Book Building process.
  12. 12. 100% Book Building Process • A. 100 per cent of the net offer to the public through book building process, or • B. 75 per cent of the net offer to the public through book building process and 25 per cent of the net offer to the public at a price determined through book building process.
  13. 13. PROCEDURE FOR BIDDING Bid shall be open for at least three working days and not more than seven working days which may be extended to a maximum of ten working days in case the price band is revised. Bidding shall be permitted only if an electronically linked transparent facility is used. • Bidding Form: There shall be a standard bidding form to ensure uniformity in bidding and accuracy. The bidding form shall contain information about the investor, the price and the number of securities that the investor wishes to bid. The bidding form before being issued to the bidder shall be serially numbered at the bidding centers and date and time stamped. • Allocation / Allotment Procedure: In case an issuer company makes an issue of 100% of the net offer to public through 100% book building process.
  14. 14. • Not less than 35% of the net offer to the public shall be available for allocation to retail individual investors; • Not less than 15% of the net offer to the public shall be available for allocation to non institutional investors i.e. investors other than retail individual investors and Qualified Institutional Buyers; • Not more than 50% of the net offer to the public shall be available for allocation to Qualified Institutional Buyers. Provided that 50% of net offer to public shall be mandatorily allotted to the Qualified Institutional Buyers, in case the issuer company is making a public issue.
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Book Building

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