Book Building Introduction Book building is a relatively new concept amongst Indian retail investors. With Maruti's offer that has reached about 75 cities and over 650 bidding centres, it is believed that more and more retail investors would become familiar with the book building concept. The Book Building Concept In the fixed price method, the offer price per share is decided by the company, in consultation with lead managers, much before the issue actually opens. In a book-built IPO, potential investors or bidders have the flexibility to bid for the shares at prices they are willing to pay. The final price is decided after an analysis of demand generated. Purpose Both the issues and the investors benefit from contemporary market conditions. Pricing is market function. Methodology In book building, investors have to submit the bid-cum-application form, containing the investor's price and volume option(s), to syndicate members, who have an electronically linked platform across the country. The electronic systems of BSE and NSE are used for this purpose. Under the existing regulations, up to 60% of the offer may be allocated to institutional investors such as FIIs and banks on a discretionary basis : a minimum of 15% to corporates, high networth individuals and individual investors bidding for more than 1000 shares. A minimum of 25% is offered to individuals bidding up to 100 shares. In the event of over-subscription, allotment in the 15 per cent and 25 per cent categories is made on a proportionate basis. Discretionary allotment in the 60% category is based on the quality of the bidder, size, price and date of the bid and other factors. The investors can include up to three bid options at the time of bidding, i.e. they can indicate up to three demand and price options in the same bid-cum-application form. The process gives investors the option of revising their bids any number of times during the bidding period. Individual investors, who bid for up to 1000 shares, can also submit the 'cut-off price' as one of the bidding options. They will be allotted shares at the final offer price, discovered through the book building process. Advantages The process offers several clear advantages : (a) Issues are priced on the basis of a realistic assessment of the demand for security and savings in issue expenses; it shields an issues from the risk of devolvement. (b) The issuer has the freedom to choose the profile of the investors of the company. (c) It benefits the prospective investor too the book building price leaves scope for raise in market price on stock exchange soon after allotment is over. (d) It allows the Investor say in the pricing of a security. It ensures reasonable after issue market price.
doc_953073550.doc
doc_953073550.doc