Book Building

Concept and the Processes.

 Introduction
 Book Building is a process by which the
Corporates determine the demand and the
price of a proposed issue on the basis of the
price book-built. Once the price and the
quantum of the issue has been determined by
the issuer, the issue may be offered under the
private placement or public offer or both as per
the SEBI regulations.
 Characteristics
 Tendering Process :
Eligible investors are required to place their
bids for the number of shares to be issued and
the price at which they are willing to invest,
with the lead manager running the book.
At the end of the cut-off period, the lead
manager determines the response to the issue
in terms of the quantum of shares and the highest
price at which the demand is sufficient to match the
size of the issue.
 Characteristics
 Floor Price:
It is the min. price set by the lead manager in
consultation with the issuer. This is the price
at which the issue is open for subscription.
Investors are free to place a bid at any higher
price than the floor price.
 Characteristics
 Price Band:
The range of price( The highest and the lowest)
at which offer for subscription of securities is made.
Investors are free to bid any price within the price
band.
 Bid:

Investor can place a bid with the authorized lead

manage-merchant banker.
 Characteristics
 Bids Contd.
In case of the equity shares usually banks and
some leading stock brokers are also authorized
by the lead manager.. Investor can give bid for
up to three optional prices. The price and
demand options submitted by the bidder are
treated as optional demands and are not
cumulated.
 Characteristics
 Allotment:
Lead Manager, in consultation with the issuer
decides the price at which the issue will be
subscribed and proceeds to allot shares to
investors who have bid at or above the fixed
price. All investors are allotted shares at the
same fixed price. For any allottee, the price
would be equal to or less than the price bid.
 Characteristics
 Participants:
Generally, all investors including
individuals are eligible to invest in a particular
issue of securities and can participate in book-
building process. However if the issue is
restricted to Qualified Institutional Investors,
as in the case of g sec., then only those
eligible can participate.
 Book Building Process
 Process of Book- Building is as under:
a) Earmarking Securities
b) Finding Price Band
c) Filing Red-herring prospectus
d) Filing Draft Prospectus
e) Appointment of Book-Runners
f) Collecting Price Bids
g) Price Setting
 Book Building Process
h) Public Subscription
i) Underwriting
j) Bank Account
k) Allotment
l) Listing
m) SEBI Inspection
 Book Building Process
A) 75 percent Book Building.
The 75% book building option of securities
is offered on a firm basis where a minimum
of 25 % 0f the securities is offered to the
public. Following steps are involved:
i) Eligibility : All Companies eligible for
public shares are eligible for raising capital
through the book building process.
 Book Building Process
ii) Earmarking of Securities:
The securities to be separately marked as
placement portion category and balance as net
offer to the public.
iii)Draft Prospectus: A DP containing all
information with indicative price band to be
filed with SEBI. Within 2 days of finalizing
issue price, DP is to be filed with the ROC.
 Book Building Process
iv) Appointment of Book Runner.
Issuing Co. appoints a Merchant Banker as
the Book Runner. BR circulates a copy of the
Draft Prospectus to Institutional Buyers who
are eligible for firm allotment and to the
intermediaries who are eligible to act as
underwriters, inviting them to subscribe to the
issue.
 Role Of Book Runner
The Book Runner maintains a record of the names and
no. of securities ordered by intermediary buyers and
the price at which they are willing to subscribe the
issue under the placement portion.

The Book Runner collects information about the

subscriptions received from underwriters and other
intermediaries. After the stipulated time period, the
Book Runner aggregates the subscriptions so
received.
The underwriters are required to make a payment of
the total amount for subscription of issues.
 Role of Book Runner
The Book Runner collects payments from the
underwriters and institutional buyers a day
prior to the opening of the issue to the public,
which includes application money for all the
applications through which securities were
subscribed by them
 Price Setting
Based on the data collected from intermediaries relating to the
total orders received, the issuing Co. and the Book Runner, set
an appropriate price of the issue for offer to the public. The
issue price is determined on the basis of Bids received through
members of the syndicate formed under the lead book runner.
This would be the issue price for both the private placement
and the public category. The no. of securities to be issued is
decided on the basis of the amount and the issue price and is
expressed as under:

No. of securities: Amt of issue/price per security.

 Underwriting
The members of the syndicate fully underwrite
the offer to the extent that is not offered to the
promoters, permanent employees and
shareholders.
For this purpose, the syndicate members enter
into an underwriting agreement which
specifies the quantum and price of shares that
would be underwritten for book building.
 Underwriting
Underwriting is mandatory for issues that are
earmarked as net offer to the public. Underwriters
maintain a record for the subscriptions received by
them for the issue in the placement portion and
forward these records to the book runner. In the event
of the underwriters not being in a position to take up
the shares as committed, the book runners have to
subscribe to the issues committed for by the
underwriters.
 Bank Account
Bank Account:
The issuer Company opens two
Accounts, one for collection of the applications
Towards the private placement and the other for
The offer of the 25 % of the total issue to the
Public.
 Allotment
All those intermediaries who have offered their
Bid price at and above the now determined price
Will become eligible for allotment .Once the
eligibility is decided ,intimation will be sent to
them for subscription and payment.
Although, the allotment un the private placement
category has to be made two days prior to the
date of closure of the issue, the issuer may choose
 Allotment
to allot securities under the process for both
under private placement and under the public
category on the same day in accordance with
SEBI guidelines. In the event of any under
subscription to the public offer category, orders
in the private placement category can be utilized to
fill public subscription .While doing so preference
should be given to individual investors.
 Allotment
Similarly, when there is a deficient subscription
in
the private placement category, a spill over is
allowed from public offer category. Interest is
payable by the issuer between the date of closure
to the date of allotment.
 Listing
When all the committed money has been
collected from the underwriters by the 11 th day
of closure of the issue, the shares allotted in
the private placement category and public offer
become eligible for listing. However securities
offered online over the internet are not listed.
 Inspection
SEBI serves as the chief regulator supervising
the
Book building process. It has the powers to
carry
out the inspection of books and records
Maintained by intermediaries such as the book-
Runner, the underwriters and others.
 100 % Book Building
It is an option of book-building process of the
Securities whereby 100% of the securities is
offered on a firm basis, or is reserved for the
Promoters, permanent employees of the issuer
Company. It may also be offered to the share
Holders on a competitive basis or on a firm
allotment basis..
 100% Book Building
Conditions:
a) Min. capital to be raised is Rs. 25 Cr.
b) Reservation of firm allotment to promoters and
permanent employees only as per SEBI guidelines and in case
of new companies to
the permanent employees of the promoting co.
c) Allotment can be made on firm or competitive
basis to shareholders of promoting co. and
group companies.
d) Eligible merchant bankers to be appointed as the lead book
runners and their names to be stated in the prospectus to be
filed with SEBI.
 Lead Book Runner
This is an essential requirement.
Lead Book Runners is responsible for book
Building in order to determine the appropriate
Price and quantum of issue. For this purpose
A syndicate is formed consisting of SEBI
registered underwriters and other eligible
merchant members. In the event of any
under subscription,
 Lead Bank Runner
the lead merchant bankers have to fill the
shortfall. The Book Runners are responsible
for maintenance of records and for incorporating
any changes in the draft prospectus as suggested
by SEBI, besides maintenance of records of
Book building process which may be inspected
By SEBI.
 Draft Prospectus
The lead Book Runner files a draft prospectus
with SEBI. This document contains all the
required disclosures such as the total size etc. in
accordance with SEBI norms. Any modification
In the draft prospectus are to be intimated by the
Co. to SEBI within 21 days after receipt of the
Draft Prospectus by SEBI.
 Essential Disclosures
Details of:
 Syndicate members selected by the
lead book runner for the purpose pf bidding
of the issue.
b) Registrars and Bankers to the issue.
c) Basis of issue price
d) Accounting ratios such as pre issue
EPS, P/E etc
e) NAV per share based on the last B/S.
 Advertisement
a) The issuer, after obtaining the revised
prospectus from SEBI, advertises in leading
newspapers.
b) The advertisement contains all the features
of
the final offer document. (Sec 2A Co Act)
c) It is incumbent for the issuer to offer at least
10% of the total issue to the public.
 Stock Brokers
SEBI registered stock brokers are appointed for
placing orders with the Co. by the stock
exchange
that would act as collection centers. These stock
brokers must be capable of taking up the issue in
the event of any failure. The issuer pays them
commission for their services.
 Bidding Process
a) Advertisement is issued regarding
bidding ,date of opening ,closing, name
and address of syndicate members , bidding
terminals and the method of bidding,
b) Bidding takes place on-line electronically by
the members present at designated centers.
c) No. of collection centers and bidding centers
is as per SEBI guidelines.
 Bidding Process
d) Individuals and institutions who are not the
members can bid through the syndicate
members.
e) Bidding is done in the prescribed form giving
information on investor, price and quantum of
securities.
f) The Serial No of bidding form is system
generated and stamped automatically.
 Bidding Process
g) The Bidding form is made in duplicate and is
counter signed by the book runner/syndicate
member.
 Allotment Process
a) Min. 15% reserved for allotment to individual
investors to a max. of 10 trade able lots through
the syndicate member.
b) Min. of 10% is reserved to individual investors
who have not participated in the book building
process.
c) Allotment to individual investors to be on the
basis of a proportionate allotment system.
 Allotment Process
d) In event of under subscription of issue reserved
for individual investors, issuer may make allotment as
it deems fit.
e) Allotment to other categories shall be decided
by the Book Runner on the basis of price
commitment, investor category, price quoted etc.
f) Allotment is to be made within 15 days of closure.
Interest @ 15 % in event of default. Issue to remain
open for at least 21 days.
 Refund
The refunds shall be made by the brokers to
unsuccessful applicants within 3 days of the
receipt of the allocation. The details of amount
received from successful applicants shall be
furnished to the stock exchange in electronic
medium.
 Issue of Share Certificates
Once all the formalities for subscription are
allotment are completed, the registrars to the
issue will post the share Certificates to the
successful candidate or arrange to have the
shares to the applicants in demat form.
Conclusion

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