The document discusses book building, which is the process used to determine the price of shares being offered in an initial public offering (IPO). Book building involves generating demand for shares from investors and determining the appropriate price based on bids submitted. It allows companies to assess market demand at different price levels to set the final issue price. The key aspects covered include how the price band is set by the issuer, how bidding occurs over a period of days, and SEBI guidelines regarding allocation of shares to different investor types in a book building IPO.

1. Good Morning
Book Building
Nikhil B

2. Book Building:
Book Building is the process of determining
the price at which an Initial Public Offering will be
offered.
Book building refers to the process of
generating, capturing, and recording investor
demand for shares during an Initial Public Offering
(IPO), or other securities during their issuance
process, in order to support efficient price
discovery.

3. “Book Building” means a process undertaken by which a demand for the
securities proposed to be issued by a body corporate is elicited and built up
and the price for such securities is assessed for the determination of the
quantum of such securities to be issued by means of a notice, circular,
advertisement, document or information memoranda or offer document.
Book building” is a method of marketing the shares of a company
whereby the quantum and the price of the securities to be issued will
be decided on the basis of the ‘bids’ received from the prospective
shareholders by the lead merchant bankers. According to this method,
share prices are determined on the basis of real demand for the shares
at various price levels in the market.

4. Defination
SEBI guidelines, 1995 defined book-building as “a
process undertaken by which a demand for the
securities proposed to be issued by a body of corporate
is elicited and built up and the price for such securities
is assessed for the determination of the quantum of such
securities to be issued by means of a notice, circular,
advertisement, document or information memoranda or
offer document”.

5. Who Decides Price Band?
It may be understood that the regulatory
mechanism does not play a role in setting the price for
issues. It is up to the company to decide on the price or
the price band, in consultation with Merchant Bankers.
The basis of issue price is disclosed in the offer
document. The issuer is required to disclose in detail
about the qualitative and quantitative factors justifying
the issue price.

7. The Issuer who is planning an offer nominates lead
merchant banker(s) as 'book runners'.
• The Issuer specifies the number of securities to be
issued and the price band for the bids.
• The Issuer also appoints syndicate members with whom
orders are to be placed by the investors.
• The syndicate members input the orders into an
'electronic book'. This process is called 'bidding' and is
similar to open auction.
• The book normally remains open for a period of 5 days.
• Bids have to be entered within the specified price band.
• Bids can be revised by the bidders before the book
closes.

8. • On the close of the book building period, the
book runners evaluate the bids on the basis of
the demand at various price levels.
• The book runners and the Issuer decide the
final price at which the securities shall be
issued.
• Generally, the number of shares are fixed, the
issue size gets frozen based on the final price
per share.
• Allocation of securities is made to the
successful bidders. The rest get refund orders.

9. GUIDELINES BY SEBI
• On the recommendations of Malegam committee, The concept of
Book Building assumed significance in India as SEBI approved, with
effect from November 1, 1995, the use of the process in pricing
new issues.
• SEBI issued the guidelines under which the option of 100%book-
building was available to only those issuer companies which 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 1999
and allowed the issuer to choose either the existing or the
modified mode of book building.

10. Modified Guidelines
• Compulsory display of demand at the terminals was madeoptional.
• The reservation of 15% of the issue size for individualinvestors could be
clubbed with fixed price offer.
• The issuer was allowed to disclose either the issue size or the number 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 was
allowed to Institutional investors and atleast 15% to non-
institutional investors who had applied for more than 1,000
share

11. Types of Book Building
The Companies are bound to adhere to the
SEBI’s guidelines for book building offers in the
following manner:
 75% book building
 100% book building

12. 75 per cent Book-Building Process
Under this process 25 per cent of the issue
is to be sold at a fixed price and the balance of
75 per cent through the Book Building
process.

14. 100% Book Building Process
• A. 100 per cent of the net offer to the public
through book building process, or
• B. 75 per cent of the net offer to the public
through book building process and 25 per cent
of the net offer to the public at a price
determined through book building process.

16. PROCEDURE FOR BIDDING
Bid shall be open for at least three working days and not more
than seven working days which may be extended to a maximum of ten
working days in case the price band is revised. Bidding shall be
permitted only if an electronically linked transparent facility is used.
• Bidding Form: There shall be a standard bidding form to ensure
uniformity in bidding and accuracy. The bidding form shall contain
information about the investor, the price and the number of
securities that the investor wishes to bid. The bidding form before
being issued to the bidder shall be serially numbered at the bidding
centers and date and time stamped.
• Allocation / Allotment Procedure: In case an issuer company
makes an issue of 100% of the net offer to public through 100%
book building process.

17. • Not less than 35% of the net offer to the public shall be
available for allocation to retail individual investors;
• Not less than 15% of the net offer to the public shall be
available for allocation to non institutional investors i.e.
investors other than retail individual investors and
Qualified Institutional Buyers;
• Not more than 50% of the net offer to the public shall
be available for allocation to Qualified Institutional
Buyers. Provided that 50% of net offer to public shall
be mandatorily allotted to the Qualified Institutional
Buyers, in case the issuer company is making a public
issue.