Book Building of Equity Shares

Submitted By:
Richa Juneja (50801071)
Saurabh Dhiman (50801081)
Seema Sharma (50701516)
Sarbroop Singh (50801079)
 INVESTMENT IN
SECURITIES

1.IPO (Initial Public Offer)

2.Through Direct market purchase.

(BSE, NSE)

“IPO is when a privately owned company issues

shares of stock to be sold to the general public.”
 IPO and BookBuilding

 IPO before BookBuilding

 Buying of shares on fixed price.

 IPO after BookBuilding

 Share prices between a specified price band

 Price band in the book building process refers to

the band within which the investors can bid. The
spread between the floor and the cap of the
price band is not be more than 20%
 What Is BookBuilding

 Book building refers to the collection of bids from

investors, based on a floor price, which is
indicated before the opening of the bidding
process. the issue price is fixed after the bid
closing date.

 Book building is a technique used for marketing

a public offer of equity shares of a company.
Types Of Book Building
75% Book Building
Difference between shares through book
building and normal public issue?
Features Fixed Price process Book Building process

Pricing Price at which the securities Price at which securities will be

are offered/allotted is known offered/allotted is not known in
in advance to the investor. advance to the investor. Only an
indicative price range is known.

Demand Demand for the securities Demand for the securities

offered is known only offered can be known
after the closure of the everyday as the book is built.
issue
Payment 100 % advance payment 10 % advance payment is required
is required to be made by to be made by the QIBs along with
the investors at the time the application, while other
of application. categories of investors have to pay
100 % advance along with the
application.
100% Book Building
Types of investors

 The retail individual investor (RII)----- 35%

 Non-institutional investor (NII)----- 15%
 Qualified Institutional Buyers (QIBs)-----50%

RII is an investor who applies for stocks for a value of not

more than Rs 100,000.

NIIs are commonly referred to as high net-worth individuals.

QIBs are institutional investors who posses the expertise and

the financial muscle to invest in the securities market.
Division of shares in100% Book Building
BOOK BUILDING PROCESS
Book Building as a process
 Nominates lead merchant banker(s) as 'book
runners'.
 Issuer specifies number of securities to be issued and
the price band for bids.
 Issuer also appoints syndicate members with whom
orders are to be placed by the investors.
 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 3 to 5
days.
Contd…
 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, number of shares are fixed, issue size
gets frozen based on the final price/share.
 Allocation of securities is made to the successful
bidders. The rest get refund orders.
BOOK RUNNERS
 Why Book Building?

This process will help to discover the

demand and the price of the shares.
also, the costs of public issue are
much reduced and the time taken
for completion of the entire process
is much less than the in the normal
public issue.
 Example

The price discovery is a function of demand at various prices. The

highest price at which the issuer is able
to issue the desired number of shares is the price at which the book
cuts off i.e. Rs. 22 in the above
example. The issuer, in consultation with the BRLM, will finalize the
issue price at or below such cut off
price i.e. at or below Rs. 22. All bids at or above this issue price and
cut-off bids are valid bids and are
considered for allocation in the respective categories.
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 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.
Limitations of Book- Building System

 In the case of the potential investors, the companies can

adjust the attributes of the offer according to the
preferences of the potential investors.
 The issuer company should be fundamentally strong and
well known to the investors.
 The book-building system works very efficiently in
matured market conditions.
 In such circumstances, the investors are aware of the
various parameters affecting the market price of the
securities.
 There is a possibility of price rigging on listing as
promoters may try to bail out syndicate members
SEBI Guidelines
 A company going public has to offer its minimum 25 per cent of
issued post-issue equity to the public and maximum of 75 per cent
post issue equity can remain with the promoters
 Companies making an issue of over Rs.200 crores need offer only a
minimum of 10 per cent of post issue equity. Out of the total public
issue size, 90 per cent of the issue can be offered through book
building process while only 10 per cent of the issue can be offered
via fixed price portion.
 Out of the book building portion, a minimum of 10 per cent of the
issue size has to be reserved for retail bidders while 75 per cent of
the issue can be offered to wholesale bidders.