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PricingIssues (IPOs)

This document discusses various pricing methods used for initial public offerings (IPOs) in India. It describes the fixed price method, book building process, reverse book building, green shoe option, and differential pricing. The book building process involves determining the issue price based on feedback from potential investors within a price band set by the issuer. Reverse book building is used to determine the buyback price when delisting a company's shares. The green shoe option allows for over-allotment of shares to stabilize the market price after listing. Differential pricing permits offering shares at a discount to certain investor categories.

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Jagadeesh Putturu
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23 views

PricingIssues (IPOs)

This document discusses various pricing methods used for initial public offerings (IPOs) in India. It describes the fixed price method, book building process, reverse book building, green shoe option, and differential pricing. The book building process involves determining the issue price based on feedback from potential investors within a price band set by the issuer. Reverse book building is used to determine the buyback price when delisting a company's shares. The green shoe option allows for over-allotment of shares to stabilize the market price after listing. Differential pricing permits offering shares at a discount to certain investor categories.

Uploaded by

Jagadeesh Putturu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Pricing Issues(IPOs)

Methods of pricing
Fixed price method
Book building process
Reverse book building
Green shoe option(g s o)
Differential pricing
Fixed price method
•A fixed price of offer is decided and it is
mentioned in the offer document
Book building process - the process of
price discovery
It determined on the basis of demand from
investors.
It is the process of fixing price for an issue of
securities on a feedback from potential
investors based upon their perception about
.

The issue price is not determined in advance,


the book running lead manager(b r l m)
arrives at a price at which the issue is to be
made.
There is auction of shares and the issuer
discloses a floor price in the red herring
prospectus
Bid Price

The cutoff option is available for only retail


individual investors, such investors need to
tick the option ,which means the willingness to
subscribe any price within the price band
The process of book building
1. the company will first of all appoint a lead
manager to the issue.
2. Then the price band of the issue is decided
(A price band is a range of lower level and
the upper level within which the investors
can bid.)
The lower level of the price band is called
floor price . The upper level is cap price.
The lead manager is book runner
Reverse book building
•It is used to delist the company’s share .
it is used to find the price at which the shares
are available for buyback from the
shareholders.
It would be above or equal to floor price done
under the provisions of SEBI guidelines, 2003
Shares buy back
Buy Back - Impact
Green shoe option (GSO)
There could be much difference between the
issue price and market price of a share,
immediately after listing .It would either affect
the existing shareholders or the new
shareholders.In order to avoid such situation
companies adopt a new method called GSO.it
is also called over allotment option.
•It was green shoe company which
adopted this method for the first time and
thus got this name
The money raised through this over allotment
will be kept in a separate bank a/c under the
control of a merchant banker called stabilising
agent
Differential pricing
•It is a system of offering shares at a different
price for a particular category of investors . it
would be allotted at a discount .the difference
shall not be more than 10%of price
QIB
•Under this head , financial institutions such as
bankers , mutual fund , insurance companies ,
foreign institutional investors etc are permitted to
bid. Small Investors Development
Corporation(SIDC),provident fund(PF),pension
fund , venture capital fund , public financial
institutions etc.
A maximum of 50%of issue kept reserved for
investors falling under QIB category.
Out of 50%shares ,5%are reserved for mutual
funds.
Non institutional investors
Under this , resident Indian individuals, HUF’s,
companies , corporate bodies ,NRI’s,
societies and trusts whose application size in
terms of value of more than 1lakh are alloted
to bid.At least 15%of total issue reserved for
non institutional bidders.
RETAIL INVESTORS
•Under this, only individuals , both resident
and NRI’s along with HUF’s are alloted to bid.
At least 35% of issue is reserved for such
investors, If one want to apply under this the
application size in terms of value should not
exceed 1lakh

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