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BOOK BUILDING

By: Aaliya Pirzada


Chetna Rathi
Jay Desai
Pooja Desai

CONTENTS
I. Meaning
II. Concept and Mechanism
III. Types of Book Building
IV. Book Building Process
V. Guidelines Prescribed by SEBI
VI. Limitations

MEANING
Book Building refers to the collection of bids from
investors, based on a floor price, which is
indicated before the opening of the bidding
process. The issue price is fixed after the bid
closing date.
Book Building is a technique used for marketing a
public offerof equity shares of a company.

DEFINATIONS
Book Building is a process of fixing the price
foran issue of securities on the feedback
frompotential investors based upon their
perception about the company

INVESTMENT IN SECURITIES
IPO (InitialPublic Offer)
Through Direct market purchase.(BSE, NSE)IPO is
when a privately owned
companyissuessharesofstockto
besoldtothegeneralpublic.

BOOK BUILDING & 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 band within which the investors can bid. The
spread between the floor and the cap of the price
band should not be more than 20%.

TYPES OF BOOK BUILDING


75% BOOK
BULDING
BOOK
BUILDING

100% BOOK
BUILDING

TYPES OF INVESTORS
---> RII (Retail individual investors )
is an investor who applies for stocks for a value of
not more than RS. 100,000.

---> NIIs (non institutional investors )


are referred to as high net-worth individuals.
---> QIBs (qualified institutional buyers)
are institutional investors who possess the
expertise & the financial
muscle to invest in the securities market.

75% BOOK BUILDING


Total Public Issue
i.e. net offer to the public
Book Building
Method

75% of the net offer to the


public can be offered to
institutional as well as noninstitutional investors who had
participated in the bidding
process
Not less than 25% of the net
offer to the public shall be
available for allocation to nonqualified institutional buyers

Fixed Price
Method
25% of the net offer to the
public can be offered at the
price determined through
book building shall be
reserved for allocation to
retail individual investors who
had not participated in the
bidding process
Not more than 50% of the net
offer to the public shall be
available to qualified
institutional buyers

100% BOOK BUILDING


Total Public Issue
i.e. Net offer to the
public

Allocation to Retail
individual investors
(who participated in
the bidding process)
who bids for securities
for a value of not
more than Rs 50,000
Not less
than 25% of
the net offer
to the public
shall be
available for
allocation

Allocation to
non
institutional
investors who
participated in
the bidding
process

Allocation to
qualified
institutional buyers
who participated in
the bidding process

DIVISION OF SHARES IN 100%


BOOK BUILDING

BOOK BUILDING PROCESS

GUIDELINES PRESCRIBED BY
SEBI
The option of book-building shall be available to all body corporate
which are otherwise eligible to make an issue of capital to the
public.
The issuer company shall have an option of either reserving the
securities for firm allotment or issuing the securities through bookbuilding process.
The requirement of minimum 25% of the securities to be offered to
the public shall also be applicable
In case the book-building option is availed of, underwriting shall be
mandatory to the extent of the net offer to the public.
Issue of capital shall be Rs.25crores and above.
In April 2000, SEBI modified guidelines for the 100% book-building
process. i.e. a maximum of 60% of theissue was allowed to
Institutional investors and at least 15% to non-institutional investors
who had applied for more than 1,000shares

LIMITATIONS
The number of investors invited to apply are limited.
Book building relies on muchinteraction among firms,merchant
bankers, and investors, which is absent inIndia.
lack of transparency at critical steps of thebook
buildingprocess.
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 depending upon
market conditions.