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A method of marketing the shares of a company whereby the quantum and the price of the securities to be issued will be decided on the basis of the bids received from the prospective shareholders by the lead merchant bankers is known as book-building method .
The option of book-building is available to all body corporate, which are otherwise eligible to make an issue of capital of the public. The initial minimum size of issue through book-building route was fixed at Rs.100 crores.
The book-building process involves the following steps:
1. Appointment of book-runners: the first step in the book-building is the appointment by the issuer company, of the book-runner, chosen from one of the lead merchant bankers. The book-runner in the forms a syndicate for the book building. A syndicate member should be a member of National Stock Exchange (NSE) or Over-the-Counter Exchange of India (OTCEI). Offers of bids are to be made by investors to the syndicate members, who register the demands of investors.
2. Drafting prospectus: The draft prospectus containing all the information except the information regarding the price at which the securities are offered is to be filed with SEBI as per the prevailing SEBI guidelines. The offer of securities through this process must separately be disclosed in the prospectus, under the caption placement portion category .
3. Circulating draft prospectus: A copy of the draft prospectus filed with SEBI is to be circulated by the book-runner to the prospective institutional buyers who are eligible for firm allotment and also to the intermediaries who are eligible to act as underwriters.
4. Maintain offer records: The book-runner maintain a record to the offers received. Details such as the name and the number of securities ordered together with the price at which each institutional buyer or underwriter is willing to subscribed to securities under the placement portion must find place in the record. SEBI has the right to inspect such records.
5. Intimation about aggregate orders: The underwriters and the institutional investors shall give intimation on the aggregate of the offers received to the book-runner.
6. Bid analysis: The bid analysis is carried out by the book-runner immediately after the closure of the bid offer date. An appropriate final price is arrived at after a careful evaluation of demands at various prices and the quantity.
7. Mandatory underwriting: Where it has been decided to make offers of shares to public under the category of Net offer of the Public , it is incumbent that the entire portion offered to the public is fully underwritten.
8. Filling with ROC: A copy of the prospectus as certified by the SEBI shall be filed with the Registrar of Companies within two days of the receipt of the acknowledgement card from the SEBI.
9. Bank accounts: The issuer company has to open two separate accounts for collection of application money, one for the private placement portion and the other for the public subscription.
10.Collection of completed applications: The book-runner collects from the institutional buyers and the underwriters the application forms along with the application money to the extent of the securities proposed to be allotted to them or subscribed by them.
11.Allotment of securities: Allotment for the private placement portion may be made on the second day from the closure of the issue. The issuer company, however, has the option to choose one date for both the placement portion and the public portion.
12.Payment schedule and listing: The book-runner may require the underwriters to the net offer to the public to pay in advance all moneys required to be paid in respect of their underwriting commitment by the eleventh day of the closure of the issue.
13.Under-subscription: In the case of under-subscription in the net offer to the public category, any spillover to the extent of under subscription is to be permitted from the placement portion category subject to the condition that preference is given to the individual investors.
Advantages of book-building
Book building process is of immense use in the following ways:
1. Reduction in the duration between allotment and listing
2. Reliable allotment procedure
3. Quick listing in stock exchanges possible
4. No price manipulation as the price is determined on the basis of the bids received.
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