676The Chartered AccountantNovember 2005
BOOK-BUILDING PROCESS: AN EFFICIENTMECHANISM FOR MANAGEMENT OFMEGA PUBLIC ISSUES IN INDIA
he stoc maret hasbeen acnowledgedall over the world as vital or long-term economicgrowth. Several empiri-cal studies have proved thatthere is a strong positive cor-relation between the level o sophistication o a country’sstoc maret and its level o economic growth and de- velopment. Countries with well-developed stoc mar-ets generally tend to enjoy higher economic growth anddevelopment than those withunderdeveloped stoc mar-ets (Fran). There was a vitalneed to strengthen the capitalmaret, which could only beachieved through structuralmodications, introducingnew maret mechanism, in-struments, and by taing stepsor saeguarding the interesto the investors through moredisclosures and transparency.In this context, an importantmechanism named as Boo-Building in the system o Ini-tial Public Oerings (IPOs) was introduced by SEBI inIndia on the basis o the rec-ommendations o the com-mittee constituted under thechairmanship o YH Male-gam in October 1995. TheBoo-Building is the mostpractical mechanism or thequic and ecient manage-ment o mega issues
(includ-ing oers or sale).
SEBI guidelines, 1995dened boo-building as“a process undertaen by which a demand or the se-curities proposed to be issuedby a body o corporate is elic-ited and built up and the priceor such securities is assessedor the determination o thequantum o such securities tobe issued by means o a notice,circular, advertisement, docu-
*The author is Convener ICET 2005, Professor of Commerce and Business Management, KakatiyaUniversity, Warangal.**The author is a faculty Member and Research Scholar of Department of Commerce and Business Management, University Arts & Science College inWarangal.
Dr. V. Gangadhar
The boo-building system is part o Initial Public Oer(IPO) o Indian Capital Maret. It was introduced by SEBIon recommendations o Mr. Y.H. Malegam in October 1995.It is most practical, ast and ecient management o MegaIssues. Boo Building involves sale o securities to the publicand the institutional bidders on the basis o predeterminedprice range. It is an innovative method o mareting securi-ties involving price determination and quantum o securitieson the basis o the demand rom the prospective sharehold-ers. In this process the SEBI (Maret Regulator) has issued various guidelines or control and regulation o boo-buildingprocess. Since, inception o boo-building process in India,Share o Mega Issues in total capital mobilised has increasedrom 60.1 per cent in 1994-95 to 92.3 per cent in 2003-04.ment or inormation memo-randa or oer document”.In general, the word “Boo-building” is a method o mar-eting the shares o a com-pany whereby the quantumand the price o the securitiesto be issued will be decided onthe basis o the ‘bids’ receivedrom the prospective share-holders by the lead merchantbaners. According to thismethod, share prices are de-termined on the basis o realdemand or the shares at vari-ous price levels in the maret.
The main objectives o this article are as ollows:1. To understand the con-ceptual ramewor o Boo-Building.2. To study the regulatory guidelines o SEBI orBoo-Building Issues.3. To examine the recent de- velopments in the Boo-Building Process.4. To analyse the Trends inthe Boo-Building Issuesin India.
The introduction o boo-building in India in1995 was on account o therecommendations o an ex-pert committee appointed by SEBI under Chairmanshipo YH Malegam “to review the (then) existing disclosurerequirements in oer docu-ments.” Two o the terms o reerence being “the basis o
Mega Issue is an Initial Public Oer with a capital oered to public exceeds more than Rs. 100 crore.
G. Naresh Reddy