Book Building vs Fixed Assets ROSH

8/8/2019 Book Building vs Fixed Assets ROSH

http://slidepdf.com/reader/full/book-building-vs-fixed-assets-rosh 1/13

BOOKBOOK BUILDINGBUILDING



Book-building is a process of price

discovery used in public offers. The issuer

sets a base price and a band price within

which the investor is allowed to bid forshares.



y The company does not come out with a

fixed price for its shares; instead,

it indicates a price band that mentions the

lowest (referred to as the floor) and the highest (the cap) prices at which a share can

be sold.

y Bids are then invited for the shares. Each

investor states how many shares s/he wants

and what s/he is willing to pay for those

shares (depending on the price band).



y The actual price is then discovered based

on these bids.



y Every public offer through the book-

building process has a book running lead

manager (BRLM), a merchant banker, who

manages the issue.

y Further, an order book, in which the

investors can state the quantity of the

stock they are willing to buy, at a price within the band, is built. Thus the term

'book-building.'



Three classes of investors can bid for the

shares:

1. Qualified Institutional Buyers(QIBs)

2. Retail investors:Anyone who bids for

shares under Rs 50,000 is a retail investor.

3.High net worth individuals and employees of the company.



y Take the recent,Yes Bank , the floor price was Rs 38 and the band was from Rs 38 to Rs 45.

y

The investor had to bid for a quantity of shares he wished to subscribe to within this band.

y An issue through the book-building route

remains open for a period of 3 to 7 days and can be extended by another three days if the issuer decides to revise the floor price and the band.



FIXED PRICING



Fixed price issues are issues in which the

issuer is allowed to price the shares as he

wishes. The basis for the price is explained

in an offer document through qualitative and quantitative statements. This offer

document is filed with the stock

exchanges and the registrar of companies.



Fixed priceFixed price vsvs book buildingbook building

methodmethod

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 ISSUEBOOK BUILDING ISSUE

OFFER PRICE DEMAND PAYMENTS RESERVATION

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.



y Globally, the book building method is favoured

for its mutually beneficial nature: investors get

the shares at a fair price that typically has

potential upside, and the issuing company receives fair compensation.

y However regionally it is likely to take some

time to adapt to this method. This will upset

some investors in the short term, who are used to making a lot of money from these fixed price

IPOs.



END

Book Building vs Fixed Assets ROSH

Documents

Transcript of Book Building vs Fixed Assets ROSH