Book building is a process used by underwriters during an initial public offering (IPO) to determine the price of shares to be offered. An underwriter, usually an investment bank, invites institutional investors to submit confidential bids that indicate the number of shares they want to buy and the price they are willing to pay. This allows the underwriter to gauge demand for the shares across different price points to determine an appropriate offer price. Key aspects of book building include setting a price range, collecting bids, and determining the final cut-off price for share allocation based on investor demand. The process aims to set a market-based price and give companies feedback on investor interest and valuation.

1. BOOK
BUILDING

2. Book Building
 Book building is the process by which an
underwriter attempts to determine the price
at which an initial public offering (IPO)
will be offered.
 An underwriter, normally an investment
bank, builds a book by inviting institutional
investors (fund managers et al.) to submit
bids for the number of shares and the
price(s) they would be willing to pay for
them.

3. • Book building is actually a price discovery method.
• In this method, the company doesn't fix up a
particular price for the shares, but instead gives a
price range, e.g. Rs 80-100.
• When bidding for the shares, investors have to decide
at which price they would like to BID Based on the
demand and supply of the shares, the final price is
fixed.
• The lowest price (Rs 80) is known as the floor price.
• The highest price (Rs 100) is known as cap price
• The price at which the shares are allotted is known as
cut off price.
• The entire process begins with the selection of the
lead manager, an investment banker whose job is to
bring the issue to the public.

4. CHARACTERISTICS
• Tendering Process
• Floor Price
 Minimum Price Level
• Price Band
Lower Band
Higher Band
• Bid
Bid Cum Application
• Allotment
• Participants

5. The Companies are
bound to adhere
SEBI guidelines for
book building offers
in the following
manners
75% book
building
100% book
building

6. Company Plans an IPO
via the book-building
route
•Appoints a merchant banker
as book-runner
Issues a draft
prospectus (note 1)
•Draft prospectus filed
simultaneously with
concerned authority (SEBI)
Book-runner appoints
syndicates members
and registered
intermediaries to
garner subscribers
•Price Discovery begins
through bidding process
At Close of bidding,
book-runner and
company decide upon
the allocation and
allotments

7. Benefits
 Book building helps in evaluating the intrinsic worth of the instrument being
offered and the company’s credibility in the eyes of public. The entire exercise
is done on a wholesale basis.
 Price of instrument is determined in a more realistic way on the commitments
made by the prospective investors to the issue.
 Issuers can choose investors by quality
 The Issuer company saves advertising and brokerage commissions.
 Optimal demand based pricing is possible.
 Transparency of allocations is made.
 Book-building process creates a liquid and buoyant after market.
 Immediate allotment and listing of placement portion of securities.

8.  No Road show done.
 Still depended on good faith.
 No of invester invited are limited
 Lack of transparency
 Not proved to be good price discovery mechanism
 Issuer have to sell cheap due to collective bargaining
 This type of issues are not liable for a small type of
companies or new start-ups.
 This type is basically suitable for Mega issues.

9. Source
• www.investopedia.com
• www.yourarticlelibrary.com
• www.business.rediff.com
• www.slideshare.com
• www.accountingnotes.com

10. JINENDRA KOCHAR