What is book building in stock market? Back

As you know to grow the any organization, companies need the funds first. For that purpose they can raise their funds either externally or through internal sources. They try to raise their funds through Initial Public Offer (IPO) and Follow on Public Offer (FPO). It is a method where, during the period for which book for the offer is open, they collect the bids from investors at various price, which will be in the range of price band, which is specified by the issuers.

The process of book buildings is the following:

When a company plans an IPO through the book building price route, they contact to a merchant banker as book-runner. They will issues a draft prospects (in that prospects all the containing mandatory company disclosures other than price) will be mention. That draft will be deposit with concerned authority in SEBI. The Issuer also appoints syndicate members with whom orders are to be placed by the investors. The syndicate members put the orders into an ‘electronic book’. This process is called ‘bidding’ and is similar to open auction. The book remains open for a period of 5 days only. Traders bid should be entered within the specified price band which is issued by issuer. A trader can revised the bids through the bidders before the book closes only. 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 merchant banker or the book runner and the company will decide the final price at which the securities shall be issued to the shareholders. The number of shares is fixed only when the issue size gets frozen based on the final price per share. After the allocation of securities is made to the successful bidders. The rest bidders get refund orders immediately.

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