book building new2

8/2/2019 Book Building New2

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Zeeshan Saeed

Ayesha Rishi

Sidra Waheed

Bushra


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Book building refers to the process of generating,capturing and recording investor demand for sharesduring an IPO, in order to support efficient Price

Discovery

The issuer appoints a major investment bank to act as amajor securities underwriter or book runner

What Is Book Building?


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IPO before BookBuilding

Buying of shares on fixed price.

IPO after BookBuilding

Share prices between a specified price band

IPO and BookBuilding


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Example:

Floor Price = Rs 20

The spread between the floor and the capof the price band is not be more than 20%

20% of Rs 20 = 4

Cap Price = Rs 20 + Rs 4

= Rs 24

Price Range = 20 24

Price band

It refers to the band within which the investors can bid. Thespread between the floor and the cap of the price band is notbe more than 20%


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Difference Between Fixed Price Process andBook Building Process

Features Fixed Price process Book Building process

PricingPrice at which the securities are

offered/allotted is known in advance to theinvestor.

Price at which securities will beoffered/allotted is not known in advance to

the investor. Only an indicative price range is

known.

DemandDemand for the securities offered is known

only after the closure of the issueDemand for the securities offered can be

known everyday as the book is built.

PaymentPayment if made at the time of subscription

wherein refund is given after allocation.Payment only after allocation.


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BOOK BUILDING BID ENTRY


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This process will help to discover the demand and theprice of the shares. also, the costs of public issue aremuch reduced and the time taken for completion of

the entire process is much less than the in the normalpublic issue.

Why Book Building?


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Example

Bid Quantity Bid Price (Rs) Cumulative Quantity Subscription

500 24 500 16.67%

1000 23 1500 50%

1500 22 3000 100%

2000 21 5000 166.67%

2500 20 7500 250%

A company ABC wants to sell 3000 shares through Book Building Process at aprice band of Rs 20 24

Company received bids from 5 bidders in the following manner:

Rs. 22 then becomes your cut off price, and all bids above this price levelare considered legal bids


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The Retail Individual Investor (RII)

Non-Institutional Investor (NII)

Qualified Institutional Buyers (QIBs)


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The Retail Individual Investors (RIIs)

Also known as an "individual investor" or "small investor who buy and sell

securities for their personal account

RII is an investor who applies for stocks for a value of not more than Rs 100,000.

Non-Institutional Bidders (NIBs)

Individual investors, companies, trusts etc who bid for more then Rs 1 lakhs areknown as Non-institutional bidders.

Qualified Institutional Bidders (QIB's)

Financial Institutions, Banks, FII's and Mutual Funds who are registered with SECP arecalled QIB's. They usually apply in very high quantities.


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Division of shares in 100% Book Building


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Book Building Process

A Book-runner is nominated by IPO issuing company

Company announces the total number of shares to be

issued and the price band in which the investors can bid

Investors are then allowed to bid for these issued shares

for a specific period of time only

Investors place their bids (i.e. Price and quantity of shares) through brokers

Brokers stores in electronic book

Stored bids are evaluated by book-Runner

The book-runners and company decides the final price at which the shares

shall be issued.

IPOs are allotted to eligible investors.


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Benefits of Book Building

It provides a mechanism of price discovery and demand for shares in themarket

Reduces the risk of under pricing

Lower issue cost compared to traditional method

Issuing company also has the option to select the quantity of investors

More flexibility and greater control for issuing company


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LimitationsofBookBuildingSystem

In the case of the potential investors , the companies can adjust

the attributes of the offer according to the preferences of the

potential investors.

The issuer company should be fundamentally strong and well

known to the investors.

The book-building system works very efficiently in matured market

conditions.


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In such circumstances, the investors are aware of the

various parameters affecting the market price of the

securities.

There is a possibility of price rigging on listing as

promoters may try to bail out syndicate members.

Contd


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KARACHI, Oct 31 Pakistan Stock market`s first ever offerfor sale of shares via Book Building process wassuccessfully concluded on Thursday nov, 2009 by thebook runner, AKD Securities Limited, a statement by thecompany said.It stated that the book building for issuer Ghani GasesLimited stipulated confirmed bids for 8.6 million sharesagainst an offer of 6.0 million shares with the floor priceof the issue at Rs13.50 per share. The strike pricedetermined through the process of Dutch Auction Methodwas calculated at Rs14.00 per share. The issue was

oversubscribed by over 43pc.

First book building transaction concludes


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SECP AND BOOK BUILDING PROCESS

introduction of one uniform criterion for loan-based projects and

equity-based projects.

removal of restriction on the sponsors of companies to retain at least

25% of the capital for all times now it is just for three financial years .

removal of the requirement of project appraisal from a financial

institution.

exemption from certain requirements for charging premium in case

the issue/offer of shares is made through book building process.


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CONCLUSION

However, the book building process expected to increase substantially the

number of IPOs which in turn will offer the investors with additionalinvestment opportunities and also enhance the size and depth of thesecurities market.

Book Building process aims at fair pricing of the issue which is supposed toemerge out of offers made by various investors. One question may arisewhether book building is the right mechanism for fair pricing discovery inIPOs?

The answer may be in the negative because a floor price is fixed for the BookBuilding below which no bid can be accepted. Since investors participatethrough Book Building process in making fair pricing of IPOs where there is noceiling price, there should not be any floor price.


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THANK YOU!

book building new2

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