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Book Building

Book Building Process

Book building is a process of price discovery in case of IPOs. When Companies come through the book building route, the price of the issue is not fixed before hand. Rather the issue document only gives a floor price or the price band within which investors can bid for the shares. The IPO applicants bid for the shares being issued by the company quoting the price of their bid and the quantity that they would like to bid at. Only the retail investors have the option of bidding at ‘cut-off’. Cut off means that the investors are not active bidders but they are willing to accept whatever price is getting arrived at based on bidding done by other persons. After the bidding process is complete, the ‘cut-off’ price is arrived and shares are issued to successful applicants.

What is a 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%. In other words, it means that the cap should not be more than 120% of the floor price. It is up to the company and its merchant bankers to decide on the price or the price band of the public issue. There is no cap or regulatory approval needed for determining the price of an IPO. The only requirement is that the issuing company is required to disclose in detail about the qualitative and quantitative factors justifying the issue price.

How is the Retail Investor defined as?

‘Retail individual investor’ means an investor who applies or bids for securities of or for a value of not more than Rs.1,00,000.

Can a retail investor also bid in a book-built issue?

A retail investor can bid in a book-built issue for a value not more than Rs.1,00,000. Any bid made in excess of this will be considered in the HNI category.

What is "online bidding"?

A company bringing out an IPO can use the infrastructure of a stock exchange for on-line system offer of securities. An investor desirous of making the application may place his bids through the online terminals offered by some of the brokers. This is the easiest way of investing in IPO, where broking houses such as ICICIdirect.com, Kotak Securities, Geojit securities etc, offer their clients to invest in IPOs through click of the button

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