Final Book Building Process

  • Published on
    07-Apr-2018

  • View
    218

  • Download
    0

Embed Size (px)

Transcript

  • 8/6/2019 Final Book Building Process

    1/14

    Book Building Process

    The price discovery mechanism

  • 8/6/2019 Final Book Building Process

    2/14

    Meaning

    It is a process used for marketing a publicoffer of equity shares of a company.

    It is a mechanism where, during the

    period for which the book for the IPO isopen, bids are collected from investors atvarious prices, which are above or equalto the floor price.

    The process aims at tapping bothwholesale and retail investors. Theoffer/issue price is then determined afterthe bid closing date based on certainevaluation criteria.

  • 8/6/2019 Final Book Building Process

    3/14

    The Process

    The Issuer who is planning an IPO nominates a leadmerchant banker as a 'book runner'.

    The Issuer specifies the number of securities to beissued and the price band for orders.

    The Issuer also appoints syndicate members withwhom orders can be placed by the investors.

    Investors place their order with a syndicate memberwho inputs the orders into the 'electronic book'. Thisprocess is called 'bidding' and is similar to openauction.

    A Book should remain open for a minimum of 3 daysand maximum for 10 days.

    Bids cannot be entered less than the floor price. Bids can be revised by the bidder before the issue

    closes.

  • 8/6/2019 Final Book Building Process

    4/14

    Process.

    On the close of the book building period the 'bookrunner evaluates the bids on the basis of theevaluation criteria which may include - Price Aggression Investor quality

    Earliness of bids, etc. The book runner and the company conclude the

    final price at which it is willing to issue the stock andallocation of securities.

    Generally, the number of shares are fixed, the issue

    size gets frozen based on the price per sharediscovered through the book building process. Allocation of securities is made to the successful

    bidders. Book Building is a good concept and represents a

    capital market which is in the process of maturing.

  • 8/6/2019 Final Book Building Process

    5/14

  • 8/6/2019 Final Book Building Process

    6/14

    Guidelines for Book Buildings

    Rules governing book building is covered inChapter XI of the Securities and Exchange Board ofIndia (Disclosure and Investor Protection) Guidelines

    2000.

    Book building is a process by which demand ofsecurities which are being offered, is elicited andprice is determined.

  • 8/6/2019 Final Book Building Process

    7/14

    Difference b/w fixed price offer and

    book buildings.

    Fixed Price Process Book Building Process

    Price at which the securities are

    .offered/allotted is known in advanceto the investor.

    Demand for the securities offered is

    known only after the closure of the

    issue.

    Payment is made at the time of

    subscription wherein refund is given

    after allocation

    Price at which securities will be

    offered/allotted is not known inadvance to the investor. Only an

    indicative price range is known.

    Demand for the securities offered can

    be known everyday as the book is

    built.

    Payment only after allocation

  • 8/6/2019 Final Book Building Process

    8/14

  • 8/6/2019 Final Book Building Process

    9/14

    Regulatory Framework of SEBI

    1. In January 2000, SEBIh

    as issued a compendium of guidelines, circulars andinstructions to merchant bankers relating to issue of capital, including those on the

    book-building mechanism. The compendium includes a model time frame for

    book-building: After the price has been determined on the basis of bidding,

    statutory public advertisements for a continuous three days containing, inter alia,

    the price as well as a table showing the number of securities and the amount

    payable by an investor, based on the price determined, shall be issued and the

    interval between the advertisement and issue opening date should be a minimum

    of five days.

    2. The draft prospectus to be circulated has to indicate the price band within which

    the securities are being offered for subscription. The bids have to be within the

    price bands. Bidding is permissible only if an electronically- linked transparent

    facility is used. An issuing company can also fix a minimum bid size. An initial

    bid can be changed before the final rate is determined.

    3. The Prospective bidders were advised to read the Red herring prospectus

    carefully. According to the Act, a Red herring prospectus means a prospectus

    that does not have complete particulars on the price and the quantum of securities

    offered.

  • 8/6/2019 Final Book Building Process

    10/14

    Cont

    4. The year 2000, Amendment to the Act gave legal cloak to the book-building route

    by allowing circulation of the information memorandum and the red herring

    prospectus. According to the Act, a process is to be undertaken prior to the filing

    of a prospectus by which a demand for the securities proposed to be issued by a

    company is elicited, the price and the terms of the issue of such securities are

    assessed by means of a notice, circular, advertisement or document. Incidentally,

    the working group on the Comprehensive Companies Bill, 1997 (since lapsed) had

    advocated introduction of book-building. It defined the term as an international

    practice that refers to collecting orders from investment bankers and large

    investors based on an indicative price range. In capital markets, with sufficient

    width and depth, such a pre-issue exercise often allows the issue to get a better

    idea of the demand and the final offer price of an intended public offer.

    5. SEBI (Disclosure and Investor Protection) Guidelines, 2000 contains provisions

    for book building under chapter XI that includes guidelines for 75 per cent book

    building process, 100 per cent book-building process, disclosure requirements,

    allocation/allotment procedure and maintenance of books and records.

  • 8/6/2019 Final Book Building Process

    11/14

    Book building should contain two

    things

    (a) The Book Building portion and

    (b) The fixed price portion

  • 8/6/2019 Final Book Building Process

    12/14

    1. 75% Book Building process: Under this process 25% of the

    issue is to be sold at a fixed price and the balance 75%

    through the Book Building process

  • 8/6/2019 Final Book Building Process

    13/14

    2. Offer to public through Book building process: Theprocess specifies that an issuer

    company may make an issue of securities to the publicthrough prospectus in the

    following manner: a. 100% of the net offer to the public through book-building

    process, or

    b. 75% of the net offer to the public through book-buildingprocess and 25%

    of the net offer to the public at the price determinedthrough book building

    process.

  • 8/6/2019 Final Book Building Process

    14/14

    Thank you