Book building

Book building is basically the process of generating a book of investor demand for the shares during an IPO for efficient price discovery. Usually, the issuer appoints a major investment bank to act as a book runner.

Book building is a common practice in developed countries and has recently been making inroads into emerging markets as well, including India. The whole book building process is done on-line.

Process

During the fixed period of time for which the subscription is open, the book runner collects bids from investors at various prices, between the floor price and the cap price. Bids can be revised by the bidder before the book closes. The process aims at tapping both wholesale and retail investors. The final issue price is not determined until the end of the process when the book has closed. After the close of the book building period, the book runner evaluates the collected bids on the basis of certain evaluation criteria and sets the final issue price.

If demand is high enough, the book can be oversubscribed. In these case the greenshoe option is triggered.

Book Building is essentially a process used by companies raising capital through Public Offerings-both Initial Public Offers (IPOs) or Follow-on Public Offers ( FPOs) to aid price and demand discovery. It is a mechanism where, during the period for which the book for the offer is open, the bids are collected from investors at various prices, which are within the price band specified by the issuer. The process is directed towards both the institutional as well as the retail investors. The issue price is determined after the bid closure based on the demand generated in the process. eg: Larsen And Toubro Limited (Indian conglomerate) used book building process to sell its stake (approx: 12%) in Mahindra-Satyam Ltd

External links

• About Book Building
• Understanding IPO jargon

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