Book Building

What Does Book Building Mean? The process by which an underwriter attempts to determine at what price to offer an IPO based on demand from institutional investors.

Investopedia explains Book Building An underwriter "builds a book" by accepting orders from fund managers indicating the number of shares they desire and the price they are willing to pay

Read more: http://www.investopedia.com/terms/b/bookbuilding.asp#ixzz1YTFQfPCY Book building From Wikipedia, the free encyclopedia Jump to: navigation, search Book building refers to the process of generating, capturing, and recording investor demand for shares during an IPO (or other securities during their issuance process) in order to support efficient price discovery.[1] Usually, the issuer appoints a major investment bank to act as a major securities underwriter or bookrunner. The book is the off-market collation of investor demand by the bookrunner and is confidential to the bookrunner, issuer, and underwriter. Where shares are acquired, or transferred via a bookbuild, the transfer occurs off-market, and the transfer is not guaranteed by an exchanges clearing house. Where an underwriter has been appointed, the underwriter bears the risk of non-payment by an acquirer or non-delivery by the seller. Book building is a common practice in developed countries and has recently been making inroads into emerging markets as well. Bids may be submitted on-line, but the book is maintained off-market by the bookrunner and bids are confidential to the bookrunner. The price at which new shares are issued is determined after the book is closed at the discretion of the bookrunner in consultation with the issuer. Generally, bidding is by invitation only to clients of the bookrunner and, if any, lead manager, or co-manager. Generally, securities laws require additional disclosure requirements to be met if the issue is to be offered to all investors. Consequently, participation in a book build may be limited to certain classes of investors. If retail clients are invited to bid, retail bidders are generally required to bid at the final price, which is unknown at the time of the bid, due to the impracticability of collecting multiple price point bids from each retail client. Although bidding is by invitation, the issuer and bookrunner retain discretion to give some bidders a greater allocation of their bids than other investors. Typically, large institutional bidders receive preference over smaller retail bidders, by receiving a greater allocation as a proportion of their initial bid. All bookbuilding is conducted off-market and most stock exchanges have rules that require that on-market trading be halted during the bookbuilding process. The key differences between acquiring shares via a bookbuild (conducted off-market) and trading (conducted on-market) are: 1) bids into the book are confidential vs transparent bid and ask prices on a stock exchange; 2) bidding is by invitation only (only clients of the

bookrunner and any co-managers may bid); 3) the bookrunner and the issuer determine the price of the shares to be issued and the allocations of shares between bidders in their absolute discretion; 4) all shares are issued or transferred at the same price whereas on-market acquisitions provide for a multiple trading prices. [edit] Process During the fixed period of time for which the subscription is open, the bookrunner collects bids from investors at various prices, between the floor price and the cap price. Bids can be revised by the bidder before the book closes. The process aims at tapping both wholesale and retail investors. The final issue price is not determined until the end of the process when the book has closed. After the close of the book building period, the book runner evaluates the collected bids on the basis of certain evaluation criteria and sets the final issue price. If demand is high enough, the book can be oversubscribed. In these case the greenshoe option is triggered. Book building is essentially a process used by companies raising capital through public offeringsboth initial public offers (IPOs) or follow-on public offers (FPOs) to aid price and demand discovery. It is a mechanism where, during the period for which the book for the offer is open, the bids are collected from investors at various prices, which are within the price band specified by the issuer. The process is directed towards both the institutional as well as the retail investors. The issue price is determined after the bid closure based on the demand generated in the process. Are you aware what book building is all about? No? Then, read on to know more about this new method of determining the share price of a company during IPO. What is book building? When companies are on the look out to raise money for their business operations, they use various means for the same. Two of the most popular means to raise money are Initial Public Offer (IPO) and Follow on Public Offer (FPO). During the IPO or FPO, the company offers its shares to the public either at fixed price or offers a price range, so that the investors can decide on the right price. The method of offering shares by providing a price range is called as book building method. Book building Book building is actually a price discovery method. In this method, the company doesn't fix up a particular price for the shares, but instead gives a price range, e.g. Rs 80-100. When bidding for the shares, investors have to decide at which price they would like to bid for the shares, for e.g. Rs 80, Rs 90 or Rs 100. They can bid for the shares at

any

price

within

this

range.

Based on the demand and supply of the shares, the final price is fixed. The lowest price (Rs 80) is known as the floor price and the highest price (Rs 100) is known as cap price. The price at which the shares are allotted is known as cut off price. The entire process begins with the selection of the lead manager, an investment banker whose job is to bring the issue to the public. Both the lead manager and the issuing company fix the price range and the issue size. Next syndicate members are hired to obtain bids from the investors. Normally the issue is kept open for 5 days. Once the offer period is over, the lead manager and issuing company fix the price at which the shares are sold to the investors. If the issue price is less than the cap price, the investors who bid at the cap price will get a refund and those who bid at the floor price will end up paying the additional money. For e.g if the cut off in the above example is fixed at Rs 90, those who bid at Rs 80, will have to pay Rs 10 per share and those who bid at Rs 100, will end up getting the refund of Rs 10 per share. Once each investor pays the actual issue price, the shares are allotted. Book building vs fixed price The main difference between the book building method and the fixed price method is that in the former, the issue price is not decided initially. The investors have to bid for the shares within the price range given and based on the demand and supply of the shares, the issue price is fixed. On the other hand, in the fixed price method, the price is decided right at the start. Investors cannot choose the price, but must buy the shares at the price decided by the company. In the book building method, the demand is known every day during the offer period, but in fixed method, the demand is known only once the issue closes. Book building vs. Reverse book building While book building is used to raise capital for the company's business operations, reverse book building is used for buyback of shares from the market. Reverse book building is also a price discovery method, in which the bids are taken from the

current investors and the final price is decided on the last day of the offer. Normally the price fixed in reverse book building exceeds the market price. Book building is the price discovery method in which the investors bid for the shares of the company during IPO/FPO. They are given a price range in which the investors have to bid for the shares. Depending on the demand and supply of the shares, the issue price is fixed. Those who bid at the price higher than the issue price end up getting refund and those who bid at the price below the issue price end up paying the remaining amount. Scribd Upload a Document
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BOOK BUILDING PROCESS Submitted by:-Ajay Singh MakvanaAmit KumawatSubmitted to:-Dr.Rekha Acharya

BOOK BUILDING

SEBI guidelines, 1995 defines book building asa process undertaken by which a demand for the securities proposed to be issued by a body corporate is elicited and builtu p a n d t h e p r i c e f o r s u c h s e c u r i t i e s i s a s s e s s e d f o r t h e determination of the quantum of such securities to be issuedby means of a notice, circular, advertisement, document orinformation memoranda or offer document.B o o k b u i l d i n g p r o c e s s i s a c o m m o n p r a c t i c e u s e d i n m o s t d e v e l o p e d c o u n t r i e s f o r m a r k e t i n g a p u b l i c o f f e r o f e q u i t y shares of

a company. However, book building is a transparentand flexible price discovery method of initial public offerings( I P O s ) i n w h i c h p r i c e o f s e c u r i t i e s i s f i x e d b y t h e i s s u e r company along with the Book Running Lead Manager (BRLM)on the basis of feedback received from investors as well asmarket intermediaries during a certain period.

a specified price band.e level are invited from syndicate members consistingi g i b l e broker, underwriters, financial institution,e a d v e r t i s e m e n t s h o u l d m e n t i o n t h e o p e n i n g & ds received, the issuer arrives at the final cut-e final allocation in consultation with the booktusis filed with the ROC.ice determined in the book building process isBOOK BUILDING PROCESS ppt AJAY & AMIT Download this Document for FreePrintMobileCollectionsReport Document This is a private document. Info and Rating Follow

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