Book building final

Defination, Concept, Meaning, Characterstics, Functions , Types , Process, Advantages/Benifits/Pros , Limitations, Cons/Side-effecfs

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. Types

6. PROCESS

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. Limitations

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

10. JINENDRA KOCHAR PRESENTATED BY :