Book Building.pptx
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This document discusses book building and fixed price issues for raising capital in the primary market. It describes the two main types of public issues - fixed price issues where the price is known in advance, and book building issues where the price is determined after bidding within a price band. The key aspects of the book building process are outlined, including how bids are collected electronically within a price band over a period of typically 5 days, after which the final issue price is set based on demand. Guidelines for book building from SEBI are also mentioned.
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Book Building.pptx
- 2. BOOK BUILDING & FIXED PRICE ISSUES Corporates may raise capital in the primary market by way of an initial public offer, rights issue or private placement. An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. This Initial Public Offering can be made through the fixed price method, book building method or a combination of both.
- 3. TYPES OF PUBLIC ISSUES There are two types of Public Issues: ISSUE TYPE OFFER PRICE DEMAND PAYMENT RESERVATIONS Fixed Price Issues Price at which the securities are offered and would be allotted is made known in advance to the investors Demand for the securities offered is known only after the closure of the issue 100 % advance payment is required to be made by the investors at the time of application. 50 % of the shares offered are reserved for applications below Rs. 1 lakh and the balance for higher amount applications. Book Building Issues A 20 % price band is offered by the issuer within which investors are allowed to bid and the final price is determined by the issuer only after closure of the bidding. Demand for the securities offered , and at various prices, is available on a real time basis on the BSE website during the bidding period.. 10 % advance payment is required to be made by the QIBs along with the application, while other categories of investors have to pay 100 % advance along with the application. 50 % of shares offered are reserved for QIBS, 35 % for small investors and the balance for all other investors.
- 4. BOOK BUILDING Book Building is essentially a process used by companies raising capital through Public Offerings- both Initial Public Offers (IPOs) or Follow-on Public Offers ( FPOs) to aid price and demand discovery. It is a mechanism where, during the period for which the book for the offer is open, the bids are collected from investors at various prices, which are within the price band specified by the issuer. The process is directed towards both the institutional as well as the retail investors. The issue price is determined after the bid closure based on the demand generated in the process.
- 5. THE PROCESS 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.
- 6. THE PROCESS 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. 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.
- 7. GUIDELINES Guidelines for Book Building Rules governing Book building are covered in Chapter XI of the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines 2000.
- 8. BSE’s BOOK BUILDING SYSTEM BSE offers a book building platform through the Book Building software that runs on the BSE Private network. This system is one of the largest electronic book building networks in the world, spanning over 350 Indian cities through over 7000 Trader Work Stations via leased lines, VSATs and Campus LANS. The software is operated by book-runners of the issue and by the syndicate members , for electronically placing the bids on line real-time for the entire bidding period. In order to provide transparency, the system provides visual graphs displaying price v/s quantity on the BSE website as well as all BSE terminals.
- 9. REVERSE BOOK BUILDING Securities and Exchange Board of India has issued the SEBI (Delisting of Equity Shares) Regulations 2009 for voluntary delisting of equity shares from stock exchanges which provide the overall framework for voluntary delisting by a promoter or acquirer through a process referred to as Reverse Book Building. The promoter or acquirer shall appoint a Merchant Banker and also a trading member for placing bids on the online electronic system. The Merchant Banker and promoter shall make a public announcement and also dispatch a letter of offer to the public shareholders along with a bidding form. Shareholders may approach the trading member for placing offers on the on-line electronic system with the bidding form. The shareholders desirous of availing the exit opportunities are required to tender their shares to the trading members prior to placement of orders. Alternately, they may mark a pledge for the shares
- 10. REVERSE BOOK BUILDING The final offer price shall be determined as the price at which the maximum number of shares has been offered. The promoter shall have the choice to accept / not accept the price. If the price is accepted, the promoter shall be required to accept all valid offers up to and including the final price. However, if the quantity eligible for acquiring securities at the final price offered does not result in promoter holding crossing the limits specified in the Regulations, the offer shall be deemed to have failed and the company shall remain listed. At the end of the offer, the merchant banker to the book building exercise shall announce the final price and the acceptance (or not) of the price by the promoter. Any remaining public shareholders may tender shares to the promoter at the same final price up to a period of one year from the date of delisting. Special provisions have been provided in case of voluntary delisting of small companies. Equity shares of such companies may be delisted without following the Reverse Book Building process and by following a separate procedure specified in the Regulations.