What is Book Building ? how the price is determined in book building.


The IPO has received a lot of attention lately. There is talk of IPOs from village to town. But investors who have been filing IPOs at Rs 100 per share are generally worried about the issuance of IPOs through book building. Meanwhile, some investors are happy that a new process is about to begin.

They are happy that good companies from many sectors, including manufacturing, will enter the capital market through this method. In this method, it is not possible to apply for IPO at Rs. 100 per unit. This is because the premium price is determined according to the condition of the company.

Similarly, there is a provision in Book Building not to apply for minimum 10 lots. The book building guideline, 2077, provides that companies applying for IPO have to apply for a minimum of 50 lots through this method. However, this provision is being criticized for bringing out the investors with low capital.

With this arrangement, Best Cement has started the process of issuing IPO. However, the company has to go through various stages before issuing an IPO. He has now inquired with the board for internal preparations. Rupesh KC, co-spokesperson of the Securities and Exchange Board, said that the company will come for application only after the company base price is fixed.

How is the base price determined in book building?

Through this method, IPO is issued to the public only after initially selling the shares to the institutional investors. The guideline issued by the Securities and Exchange Board states that the base price of securities should be determined by studying the intent value obtained from qualified institutional investors in book building. Once the base price is fixed, the selling price limit of the securities will have to be determined.

For example, if a company is to issue an IPO through bookbuilding, the company must first determine a price based on an evaluation of its financial condition indicators. The said price should be discussed with the basis including the institutional investors who have been qualified by the Securities and Exchange Board (in book building).

Institutional investors may agree to that price. And they may disagree. In case of disagreement, the institutional investors will be able to submit the intent value. The company will determine the base price again by studying the said price. Once all these processes are completed, a base price is determined.

The price that will be maintained by adding 20% ​​to the base price will have to be maintained by reducing the upper limit and the lower limit by 20% in the base price. Suppose the base price of a company is fixed at Rs.500. The upper limit of the base price is Rs 600 and the lower limit is Rs 400. To bid at that price, you have to apply to the Securities and Exchange Board.

Eligible institutional investors should participate in the bidding within the said limit after getting the approval from the board. The cut-off price is determined on the basis of bidding. And finally, an IPO will be issued to the public with a 10% discount on the cut-off price

Statement should be submitted to the Securities and Exchange Board for IPO issuance

Institutional investors will have to submit the revised statement to the Securities and Exchange Board for approval within 7 days after the IPO distribution. The statement of cut off price, list of eligible institutional investors with securities distribution, number of securities distributed should be mentioned in the statement.If the statement submitted in the statement is deemed appropriate, the board will approve it within a week. The guideline stipulates that an invitation letter for an IPO must be published within a week of its approval.


Leave a Reply

Your email address will not be published.

Share via
Copy link