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Book Building

Book building is a method for corporations to raise money through an IPO where investors bid on stock within a price range rather than a fixed price. The final IPO price is determined based on all bid prices received. Key aspects include a floor and cap price, cutoff price for share allocation, and optional green shoe provision. The book building process involves a book runner collecting bids electronically from investors over time to build the order book and determine the final issue price, providing more flexibility and control for the issuing company compared to traditional fixed-price IPOs.

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700 views10 pages

Book Building

Book building is a method for corporations to raise money through an IPO where investors bid on stock within a price range rather than a fixed price. The final IPO price is determined based on all bid prices received. Key aspects include a floor and cap price, cutoff price for share allocation, and optional green shoe provision. The book building process involves a book runner collecting bids electronically from investors over time to build the order book and determine the final issue price, providing more flexibility and control for the issuing company compared to traditional fixed-price IPOs.

Uploaded by

santhosh prabhu m
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Book Building

What is book building?


 A method of raising money used by corporations in which
investors let the corporations know the price at which they
are interested to buy stock of the company.
 A method in which price is not given in advance, rather a
price band is given to the investors within which they bid.
 The investor bid by stating the volume and price at which
they wish to purchase the IPO shares.
 IPO’s final price is determined on the basis of all the bid
prices.
Book Building cont.
 The lowest price in the price band is known as
“floor price”.
 The highest price in the price band is known as
“cap price”.
 The price at which shares are allotted is known
as “cut off price”.
 The upper price of the band can be a maximum
of 1.2 times the floor price.
Traditional Offering V/S Book
Building
FEATURES TRADITIONAL BOOK BUILDING
OFFERING
PRICING Price at which securities are Price at which securities will
offered are known in be offered is not known in
advance advance. Only an indicative
price range is given

DEMAND Demand for securities is Demand is known everyday


known only after the closure as the Book is built.
of the issue
INVESTORS Issuer has no discretion Issuer can decide to allocate
over the quality of investors shares to any investors
as the shares are issued to falling within the cut-off
the general public. price range.

COST OF THE Includes certain fixed costs The cost of the transaction
TRANSACTION that push the overall cost of is reduced as the public
the transaction higher. portion is smaller.
Green Shoe Option
In case the issue has been oversubscribed, the
company has to exercise a green shoe option to
stabilize the post-listing price. When a particular issue
is oversubscribed the appetite of investors for the
stock has not been satisfied and once it gets listed
they tend to pick up the stock from the secondary
market. The green shoe option can be a maximum of
15% of the public offer.
Book Building Process
 A Book-runner is nominated by IPO issuing company.
 Company announces the total number of shares to be issued
and the price band in which the investors can bid.
 Investors are then allowed to bid for these issued shares for a
specific period of time only.
 Investors place their bids (i.e. Price and quantity of shares)
through brokers.
 Brokers stores in electronic book
 Stored bids are evaluated by book-Runner
 The book-runners and company decides the final price at
which the shares shall be issued.
 IPO’s are allotted to eligible investors.
Participants of Book Building

 Institutional Investors.

 High Net Worth Individuals.

 Retails Investors
Benefits of Book Building
 It provides a mechanism of price
discovery and demand for shares in the
market.
 Reduces the risk of under pricing
 Lower issue cost compared to traditional
method.
 Issuing company also has the option to
select the quantity of investors.
 More flexibility and greater control for
issuing company.
Book Building in Pakistan
 The SECP formally launched the book building
rules in April 2008.
 First company to issue its shares through book
building was GHANI GASES LTD in JUNE 2011.
 TPL DIRECT INSURANCE LTD also issued its
shares through book building.
 Both the companies used AKD SECUTRITIES LTD
as their book runner.
Conclusion
 Book building method is considered more
transparent and market determined than
fixed price IPOs.

 Here the price is not pre-determined and


is discovered through biding.

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