29800365 Book Building Presentation

8/3/2019 29800365 Book Building Presentation

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Book

BuildingPresented by:

Rajni Sharma

MBA, Final Year


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Contents

I. MeaningII. Concept and Mechanism

III. Types of Book BuildingIV. Book Building ProcessV. Guidelines Prescribed by SEBIVI. Limitations


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Meaning

Book Building refers to the collectionof bids from investors, based on a floorprice, which is indicated before theopening of the bidding process. Theissue price is fixed after the bid closingdate.

Book Building is a technique usedfor marketing a public offer of equityshares of a company.


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Definition

Book Building is a process of fixing the price foran issue of securities on the feedback from

potential investors based upon their perception

about the company.


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Book Building and IPO

IPO before Book Building Buying of shares on fixed price.

IPO after Book Building Share prices between a specified price band

Price band in the book building process refers to the bandwithin which the investors can bid. The spread between thefloor and the cap of the price band should not be more than20%


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Difference b/w shares through bookbuilding and normal public issues

Features Fixed Price process Book Building process

PricingPrice at which the

securities are

offered/allotted is known in

advance to the investor.

Price at which securities will be

offered/allotted is not known in

advance to the investor. Only an

indicative price range is known.

DemandDemand for the

securities offered is

known only after the

closure of the issue

Demand for the securities

offered can be known

everyday as the book is

built.

Payment100 % advance

payment is required to

be made by the

investors at the time of

application.

10 % advance payment isrequired to be made by the QIBs

along with the application, while

other categories of investors

have to pay 100 % advance

along with the application.


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Types of Book Building


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75% Book Building


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100% Book Building


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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 morethan Rs. 100,000.

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

QIBs are institutional investors who posses the expertise andthe financial muscle to invest in the securities market.


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Division of shares in 100% Book Building


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Structure of Book Building


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Process of Book Building


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How is Book Built in India?


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Contd


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Contd


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Contd.


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Regulatory Framework

On the recommendations of Malegam committee, The conceptof Book Building assumed significance in India as SEBIapproved, with effect from November 1, 1995, the use of theprocess in pricing new issues.

SEBI issued the guidelines under which the option of 100%book-building was available to only those issuer companieswhich are to make an issue of capital of and above Rs. 100crore.

These guidelines were modified in 1998-99. The ceiling ofissue size was reduced to Rs. 25crore.

SEBI modified book-building norms for public issues in 1999and allowed the issuer to choose either the existing or themodified mode of book building.


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Contd

Modified Guidelines:- Compulsory display of demand at the terminals was made

optional.

The reservation of 15% of the issue size for individual

investors could be clubbed with fixed price offer.

The issuer was allowed to disclose either the issue size or thenumber of securities being offered.

The allotment of the book built portion was required to bemade in Demat mode only.

In April 2000, SEBI modified guidelines for the 100% book-building process. i.e. a maximum of 60% of the issue wasallowed to Institutional investors and atleast 15% to non-institutional investors who had applied for more than 1,000shares.


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Example of Price discovery throughbook building:

ICICI was the first to price its debt issue through bookbuilding.


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Limitations of Book-Building

In India, unlike in the developed markets, the Book-buildingprocess is still dependent on good faith. It is the peer pressureand reputation that ensures that there are no defaults.

The number of investors invited to apply are limited.

Book building relies on much interaction among firms,

merchant bankers, and investors, which is absent in India. lack of transparency at critical steps of the book building

process.

Absence of strong regulation.

More lag time b/w issue pricing and listing.

Collective bargaining power of institutions.

High institutionalized holding may affect the stocks liquidity,and made it volatile as well.

The limits fixed are fungible and can be altered dependingupon market conditions.


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Thank You

Documents

29800365 Book Building Presentation