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IPO |
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1) What is
IPO |
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2) About Public
Issues?
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3) More about
Book Building?
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1) What is IPO?
An initial public offering, or IPO, is the first sale of stock
by a company to the public. A company can raise money by issuing either debt or
equity. If the company has never issued equity to the public, it's known as an IPO.
An IPO is also sometimes known as "going public." Technically,
an IPO is the offering to sell but virtually all IPOs result in all the stock offered
being sold. IPOs are generally managed by companies that specialize in handling
IPOs and have experience in determining what the likely IPO offering price should
be. If the IPO manager determines that the stock will not sell at an offering price
that is acceptable to the company, the application for an IPO is usually withdrawn
until a better time. As soon as all shares of an IPO have been sold, the stock is
now tradable through stock exchanges or specialists that trade in the stock and
the stock price may go up or down.
Basis of Allotment or Basis of Allocation is a document
publishes by registrar of an IPO to stock exchanges and IPO investors. This document
provides information about final price fixed for an IPO, issue subscription (bidding)
information or demand of an IPO and share allocation ratio.
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2) About Public Issues?
Corporates may raise capital in the primary market by way of
an initial public offer, rights issue or private placement. An Initial Public Offer
(IPO) is the selling of securities to the public in the primary market. This Initial
Public Offering can be made through the fixed price method, book building method
or a combination of both.
There are two types of Public Issues
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ISSUE TYPE
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OFFER PRICE |
DEMAND |
PAYMENT |
RESERVATIONS |
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Fixed Price Issues |
Price at which the securities are offered and would be allotted is made known in
advance to the investors |
Demand for the securities offered is known only after the closure of the issue |
100 % advance payment is required to be made by the investors at the time of application. |
50 % of the shares offered are reserved for applications below Rs. 1 lakh and the
balance for higher amount applications. |
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Book Building Issues |
A 20 % price band is offered by the issuer within which investors are allowed to
bid and the final price is determined by the issuer only after closure of the bidding. |
Demand for the securities offered , and at various prices, is available on a real
time basis on the BSE website during the bidding period.. |
10 % advance payment is required to be made by the QIBs along with the application,
while other categories of investors have to pay 100 % advance along with the application. |
50 % of shares offered are reserved for QIBS, 35 % for small investors and the balance
for all other investors. |
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3) More about Book Building?
Book Building is essentially a process used by companies raising
capital through Public Offerings-either 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.
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The Process:
• 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.
• 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 numbers 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.
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