Book building is a world practice which refers to collecting orders from investment bankers and bigger investors supported indicated price. SEBI has for the primary time issued guidelines for creating reservation in issues for bringing about firm allotment of a particular portion of the difficulty . The issuer company has an option of either reserving the securities for firm allotment or issuing the securities through book building process which is separately identified as ‘placement portion category’ within the prospectus.
In India, the practice of book building is comparatively recent. It is, nevertheless, a widespread practise within the majority of developed nations.
Types of Book Building Process:
- 100% of internet offer to the general public via book building method
75% of internet offers to the general public via book building process and 25% at the worth decided through book building Following the Book Built phase, during which the difficulty price is set , the Fixed Price section is executed sort of a typical public issue.
- Offer of shares through normal Public issue
The demand at various price levels within the worth band is formed available on the websites of the designated stock exchanges during the whole tenure of the difficulty and once the difficulty closes, the ultimate price is decided by the issuer and made known to the investors.
- Fixed Price Issues-Price at which the securities are offered and would be allotted is made known beforehand to the investors. Demand for the securities offered is known only after the closure of the difficulty 100% Applications Supported by Blocked Amount 50 you look after the shares offered are reserved for applications below Rs. 2 lakh and therefore the balance for higher amount applications.
Price at which securities are going to be allotted isn’t known just in case. Just in case of an offer of shares through book building while in the case of an offer of shares through a normal public issue, price is understood beforehand to investors. The traditional public issue is additionally mentioned because of the fixed price issue where the difficulty price is understood and determined beforehand and is additionally communicated to the potential IPO investors. Just in case of Book Building, the demand is often known everyday because the book is made . But just in case of the general public issue the demand is understood at the close of the difficulty . The ultimate price is discovered only after the book is totally built and therefore the price is discovered supporting the extent that elicits full and maximum demand. The difficulty will only communicate the bidding range and IPO investors are allowed to bid therein range. Any bid outside the range is automatically rejected. However, if you bid less than the discovered price then the allotment won’t be made. The simplest way is to bid at the cut-off price which is like acceptance that you simply are willing to simply accept the discovered price.
Securities offered to public by Book Building Method or Fixed Price Method are often differentiated on parameters enumerated below:
Pricing :- Within the Book Building Method, the worth at which securities are going to be offered/allotted isn’t known beforehand to the investor. Only an indicative price range is understood as Price Band. On the opposite hand, in Fixed Price Method, Price at which the securities are offered /allotted is understood beforehand to the investor.
Demand :- Within the Book Building Method, demand for the securities offered are often known everyday because the book is made while within the Fixed Price Method, demand for the securities offered is understood only after the closure of the difficulty.
Payment :- within the Book Building Method, payment is formed only after the allocation of securities to the investor. On the opposite hand in Fixed Price Method, payment is formed at the time of subscription of securities.
Allocation of Securities :- within the Book Building Method, allocation ratio of securities between QIB’s (Qualified Institutional Buyers), NII’s (Non-Institutional Investors) and RII’s (Retail Institutional Investors) shall be not but 50% : not but 15% : not but 35% of internet offer to public. On the other hand, within the Fixed Price Method, 25% of the general public issue is often offered to the general public through prospectus and shall be reserved for allocation to individual investors who had not participated within the bidding process.