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100% Book Building Process

Muthuraj (21 Points)

05 December 2007

Can any one plz explain regarding 100% Book Building Process? What is the role of it in IPO?

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7 Replies

Shaily Jain (Chartered Accountants) (1054 Points)
Replied 06 December 2007

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 the securities is assessed on the basis of the bids obtained for the quantum of securities offered for subscriptttion by the issuer. This method provides an opportunity to the market to discover price for securities.

Book building is a process of price discovery. Hence, the Red Herring prospectus does not contain a price. Instead, the red herring prospectus contains either the floor price of the securities offered through it or a price band along with the range within which the bids can move. The applicants bid for the shares quoting the price and the quantity that they would like to bid at. Only the retail investors have the option of bidding at ‘cut-off’. After the bidding process is complete, the ‘cut-off’ price is arrived at on the lines of Dutch auction. The basis of Allotment is then finalized and letters allotment/refund is undertaken. The final prospectus with all the details including the final issue price and the issue size is filed with ROC, thus completing the issue process.

(Guest)

Thank you very much

CA. Vikash Dwivedi (CA) (29 Points)
Replied 06 February 2008

100% BB is price determination mechanism. for issuance of share Price band is given and bidders bid on the basis of their info. you can refer SEBI guidelines on 100% BB.

Radhika (Company Secretary) (1238 Points)
Replied 20 February 2008

Book Building Process is as follows
The investors who desire to participate in a Book Building Issues are required to fill up a bid-cum-application form and deposit the same with one of the designated bidding centres along with the margin payment. Investor has provision to make 3 bids in each of the bid cum application form. Technically there is no recognition for the Book Building processor for bids under the Companies Act. However after the price is determined and the final prospectus is filed with the ROC the bid form is recognized as the application form, and is therefore called as the bid cum application form. The bidding centre register the bid through online terminals connected to NSE or BSE and issues a transaction registration slip indicating the details of the bid registered (application number, the quantum of shares at various prices). Normally only those bids that are registered and figuring in the NSE / BSE (Electronic) book are eligible to be considered for allotment. After registering the bid, the bidding centres lodge the bid-cum-application forms with any one of the escrow banks along with the cheques/ DD’s issued received for the margin amount. Retail investors have the facility to bid at “cut off price”, whereas the other investors namely the QIBs and HNI have to specify price within the price band for the bids made by them. It is important to note that cash and stock invest is not an accepted mode of remittance. After depositing the application forms with the bank, the escrow banks process them as they do for any fixed price issue; i.e., send the cheques / DD’s for collection, assign running bank serial numbers to the applications (category wise), prepare schedules in the format prescribed by the Registrars, list out cheque returns, prepare final certificate after reconciliation of the funds collected with the schedule amount, etc. In view of the short span of time available for processing, the escrow bankers are required to hand over all the application forms processed by them on a day-to-day basis to the Registrars. The penultimate day and the last day will witness huge inflows of bid-cum-applications (80 to 90% of the bids). It is observed that bankers need at least 2 to 3 clear working days to complete processing at their end. Ideally, the Registrar to the Issue should receive for processing at least 90% of the application forms within 4 days of the closure of the issue and remaining 10% in the next 1 or 2 days. The Registrar goes through the regular processing including numbering, book making, data entry, verification, reconciliation, elimination of mismatches, technical rejections, matching with electronic book etc., before preparing the “Basis of Allotment” for the different categories. The basis of allotment is submitted to the stock exchange for approval by the 11th or 12th day from the date of closure. In the event of over-subscripttion in any one or more categories then drawl of lots under the relevant categories is done in the presence of a Public Representative who is on the Governing Board of the designated Stock Exchange.