Book-building for a future

Updated: Jan 28 2002, 05:30am hrs
Sebi's recent introduction of 100 per cent book building (BB) for listing of local companies on the bourses has come as an important step in the globalisation of capital markets. Unlike previous fixed price and partial BB routes retail investors also have the option of submitting their bids at various levels. This enables the company to factor in retail demand as well in pricing rather than depending only on the institutional demand in determining the price.

In the 100 per cent BB route, retail investors can also bid at different prices unlike in the partial BB case. All investors can view the book being built at the bidding terminals and observing the bidding pattern of institutional investors, who have considerable research capabilities, individual investors can evaluate their bids in a better light. The 100 per cent BB procedure needs be carried out at least 20 stock exchanges in the country, providing considerably superior cover of investors.

Sebi guidelines stipulate that for a 100 per cent BB issue, the issuer company, in consultation with its syndicate members, provide an indicative ‘floor price’ and no ‘ceiling price.’ The investor can bid at any price he deems fit above the floor price. Retail investors applying for upto 1,000 shares also have an option of bidding at ‘cut off,’ which means the investor is willing to buy at the price determined by the book runner/company. Every investor has an option of making upto three bids on a single application form. Investors can submit the bid forms at the various collection centers set up across the country by the syndicate members. The book-running lead manager aggregate these bids and then enter it into the online NSE/BSE terminals set up at various bidding terminals. Investors can view the book and observe the demand at various price intervals at these bidding terminals.

Investor can revise bids anytime and any number of times till the book remains open for bidding. For this purpose, investors will have to fill in the bid revision form and submit it to the same syndicate member through whom he had initially registered his bid.

After the closure of the book, the book running lead managers analyse demand generated and determine the issue price in consultation with the issuer company.

Margin payment is a facility given to the investor at the discretion of the BRLM/syndicate members. However, the margins payable would be uniform across the syndicate members and investor categories.

Allotment: Allotment to institutional investors is made on a discretionary basis by the book running lead manager in consultation with the company. Allotment to non-institutional investors is made on a proportionate basis in consultation with the regional stock exchange. Thus the allotments in this category will be a function of the over-subscription in the issue. Since the allotment is proportionate every valid bidder gets at least some shares in allotment. The allotment is to be done within 15 days of closure of the book.

(The author is a leading Mumbai-based investment banker)