29800365 book building presentation
TRANSCRIPT
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Book
BuildingPresented by:
Rajni Sharma
MBA, Final Year
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Contents
I. MeaningII. Concept and Mechanism
III. Types of Book BuildingIV. Book Building ProcessV. Guidelines Prescribed by SEBIVI. Limitations
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Meaning
Book Building refers to the collectionof bids from investors, based on a floorprice, which is indicated before theopening of the bidding process. Theissue price is fixed after the bid closingdate.
Book Building is a technique usedfor marketing a public offer of equityshares of a company.
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Definition
Book Building is a process of fixing the price foran issue of securities on the feedback from
potential investors based upon their perception
about the company.
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Book Building and 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 bandwithin which the investors can bid. The spread between thefloor and the cap of the price band should not be more than20%
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Difference b/w shares through bookbuilding and normal public issues
Features Fixed Price process Book Building process
PricingPrice at which the
securities are
offered/allotted is known in
advance to the investor.
Price at which securities will be
offered/allotted is not known in
advance to the investor. Only an
indicative price range is known.
DemandDemand for the
securities offered is
known only after the
closure of the issue
Demand for the securities
offered can be known
everyday as the book is
built.
Payment100 % advance
payment is required to
be made by the
investors at the time of
application.
10 % advance payment isrequired to be made by the QIBs
along with the application, while
other categories of investors
have to pay 100 % advance
along with the application.
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Types of Book Building
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75% Book Building
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100% Book Building
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Types of Investors
The retail individual investor (RII)----- 35%
Non-institutional investor (NII)----- 15%
Qualified Institutional Buyers (QIBs)-----50%
RII is an investor who applies for stocks for a value of not morethan Rs. 100,000.
NIIs are commonly referred to as high net-worth individuals.
QIBs are institutional investors who posses the expertise andthe financial muscle to invest in the securities market.
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Division of shares in 100% Book Building
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Structure of Book Building
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Process of Book Building
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How is Book Built in India?
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Contd
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Contd
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Contd.
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Regulatory Framework
On the recommendations of Malegam committee, The conceptof Book Building assumed significance in India as SEBIapproved, with effect from November 1, 1995, the use of theprocess in pricing new issues.
SEBI issued the guidelines under which the option of 100%book-building was available to only those issuer companieswhich are to make an issue of capital of and above Rs. 100crore.
These guidelines were modified in 1998-99. The ceiling ofissue size was reduced to Rs. 25crore.
SEBI modified book-building norms for public issues in 1999and allowed the issuer to choose either the existing or themodified mode of book building.
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Contd
Modified Guidelines:- Compulsory display of demand at the terminals was made
optional.
The reservation of 15% of the issue size for individual
investors could be clubbed with fixed price offer.
The issuer was allowed to disclose either the issue size or thenumber of securities being offered.
The allotment of the book built portion was required to bemade in Demat mode only.
In April 2000, SEBI modified guidelines for the 100% book-building process. i.e. a maximum of 60% of the issue wasallowed to Institutional investors and atleast 15% to non-institutional investors who had applied for more than 1,000shares.
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Example of Price discovery throughbook building:
ICICI was the first to price its debt issue through bookbuilding.
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Limitations of Book-Building
In India, unlike in the developed markets, the Book-buildingprocess is still dependent on good faith. It is the peer pressureand reputation that ensures that there are no defaults.
The number of investors invited to apply are limited.
Book building relies on much interaction among firms,
merchant bankers, and investors, which is absent in India. lack of transparency at critical steps of the book building
process.
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 dependingupon market conditions.
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Thank You