Capital Markets III

Rights Issue
• Given to existing shareholders to subscribe in the proportion of their
holdings
• Right also gives right to renounce or just throw away the shares
• Also give right to get more than their right
• 1:10 means for every ten shares, you get 1 share as right
• Also underwritten, has lower costs than a public issue
 Book Building
• Price is determined on the basis of bids received
• Book Runner(appointed by Co) conducts road shows, awareness
campaign
• Book Runner also appoints syndicate members who help in building a
book
• Pricing is only indicative for benefit of investors , usually price band is
given and investors can bid at any price within this band
• A cut off option for whose who want shares but are not experienced
in bidding
• All the bids are analysed and a price is determined e.g
 Book Building
• M/S ABC wants to raise Rs. 500 crores by issuing shares of Rs
10 each . For simplicity assume only five persons bid for
shares . The price bid and shares applied by each are given, .
Calculate the allotment price and no. of shares allotted to
each investor
Investor Bid Price Amount of Investment
Desired
A 95 300
B 98 500
C 101 100
D 100 200
E 99 100
 Book Building
Investor Bid Price (P) Weight(W) W*P

A 95 300 28500

B 98 500 49000

C 101 100 10100

D 100 200 2000

E 99 100 9900

= 97.92
Investor Allotment in Value

A NIL

B 278 i.e.

C 55.5 i.e.

D 111

E 55.5