Book Building

Securities Market

Nehru Institute of Information Technology and Management

 Book Building
• Process to raise capital by Public Offerings IPO
and FPO
• A process where corporate determine the Dema
nd and Price of a proposed issue of Securities th
rough public bidding
 Characteristics of Book building
• Tendering Process
– Issue of tender
• Floor Price
– Least Price
• Price Band
– The Highest and Lowest price at which offer is made
between
 Characteristics of Book building
• Bid
– Bid placed to the lead manager or merchant banker
• Allotment
– Consultation between lead manager and the issuer
– Allotted at a constant price
• Participants
– Generally all investors, including individuals eligible to
participate
– Restrictions on base of government issues
 Process of Book Building
75% book building
– 75% on Firm basis
– 25% on Public Issues
• Eligibility
– All corporates are eligible for issues
• Earmarking Securities
– Placement Portion Category – Separately prepared fo
r book building issues
– Net offer to Public – For public issues
• Draft Prospectus
– Prospectus containing information of all about the co
mpany except price
 Process of Book Building
• Appointment of Book Runner
– Merchant Banker as book runner
– Book runner circulates the copy of draft prospectus a
mong the institutional buyers who are eligible for allot
ment eligible to act as underwriters
– Details of the buyers are recorded
– Collects information about other buyers and intermedi
aries
– Collects payment from intermediaries and institutional
buyers on a day prior to opening of the issue to the pu
blic
 Process of Book Building
• Price Setting
– Issuing company and the book runner sets the price
– The issue price is determined on the basis of “bids” th
rough syndicate formed under the lead book runners
– This will be the issue price for both the private placem
ent and the pubic category
– The number of securities to be issued can be decided
on the basis of amount and the issue price.
 Process of Book Building
• Bank Account
– Two accounts one for Private placement portion
– Second for the 25% public Issues
• Allotment
– Allotment will be issued for highest bidders and the pa
r value bidders
– Information will be passed after eligibility allotment
– Although allotment for private placement can be made
two days before the date of closure of the issue, the is
suer may choose to allot on the same day for both cat
egory
– Both can be intecoursed at the time of under subscrip
 Process of Book Building
• Listing
– Committed money has to collected from underwriters
by the 11th day of issue closure
– The share allotted will be eligible for listing
• Inspection
– SEBI acts as chief regulatory supervisor for book buil
ding process
– It carry out inspection of books and records maintaine
d by intermediaries
 Process of Book Building
100% Book building
– Totally on Firm basis, promoters, permanent employe
es etc
– The required minimum issue of capital is Rs 25 crore
• Conditions
– Minimum Capital is 25 crores
– Reservation of first allotment should be made accordi
ng to SEBI Guidelines
– Allotment can be made either on competitive basis or
on firm allotment basis to the share holders
– Eligible Merchant bankers shall be appointed as Lead
book runners and their name should be mentioned in t
he draft prospectus to be filled with SEBI
 Process of Book Building
• Lead Book Runner
– The book runner is primarily responsible for book buil
ding in order to determine the appropriate price and q
uantum of issues
– The lead merchant bankers have to fill the shortfall is
sues
– The lead runners are responsible for incorporating an
y changes in the draft prospectus that might be sugge
sted by SEBI
– They are responsible for maintenance of records relati
ng to book building process
 Process of Book Building
• Draft Prospectus
– The lead runner files a draft prospectus with SEBI
– Discloses all required information as total size of the i
ssue, etc
– Issue price and quantum of issue is also disclosed
– Any modifications are intimated by SEBI within a perio
d of 21days after the receipt of draft prospectus
 Process of Book Building
• Essential Disclosures
– Details of the members of the ‘syndicate’ formed by th
e lead book runner for the purpose of bidding of issue
s
– Details of registrars and bankers to the issue
– Details of ascertainment of issue price by the issuer a
nd the book runner
– Details of accounting ratios
– Details of NAV per share based on the last balance sh
eet
 Process of Book Building
• Advertisement
– The advertisement contains all features of the final off
er document as specified under the provisions(Sectio
n 2A) of the Companies Act
• Stock Brokers
– SEBI registered stock brokers are appointed for placin
g orders with company by the sock exchanges that w
ould act as collection centers for the applications
– The issuer pays commission for their services
 Process of Book Building
• Bidding process
– The members of the syndicate bid for the securities to be
issued by the issuer
– Procedures as follows
• Advertisement regarding the bidding , date of opening and closin
g of bidding(minimum 5 days opening), names and address of th
e syndicate members , bidding terminals, and the method of biddi
ng are given
• Bidding takes place online electronically by members
• The number of collection centers and bidding centers shall be ac
cording to guidelines of SEBI
• Other can bid through syndicate members
• Bidding should be in prescribed form like investor, price , quantu
m of securities etc.
• The serial number of bidding should be system generated and st
amped automatically
 Process of Book Building
• Allotment Process
– A minimum 15% of the issue shall be reserved for allotm
ent to individual investors to a maximum of 10 tradable l
ots through syndicate members
– A minimum of 10% of the issue shall be reserved to indi
vidual investors who have not participated in book-buildi
ng process
– In the event of under-subscription of issues allotment ca
n be made as it deems fit
– Allotment to other categories can be made on the basis
of prior commitment, investor quality, price quoted, etc.
– Allotment to be made within 15days from the date of Fin
al Closure of the issue. Failure will entail an interest of 1
5%p.a to the investors (issue period 21days)
 Process of Book Building
• Refund
– The broker shall refund the amount received from uns
uccessful applicants within 3 days of the receipt of all
ocation.
– The amount received form successful applicants shall
be furnished to stock exchanges in electronic medium
• Certificate
– Once all formalities are over the registrar issues to th
e issue post the share certificate to the applicants or a
rrange to have shares demanded by a depository.
 Thank You

K.Hareesh
Assistant Professor