Saturday, April 18, 2015

BASICS FOR BEGINNERS .....

 BOOK BUILDING AND REVERSE BOOK BUILDING

  Courtesy :www.goodreturns.in



Often we must have come across the term book building in financial dailies, magazines or television when companies air the advertisement for their likely IPOs, FPOs or rights issue. The book building is nothing but the price discovery mechanism for the issued shares when a company plans to raise capital. Listed companies raise capital either through follow on public offer (FPO) or right issue but unlisted do so through an Initial Public Offer (IPO). And during the process, shares can be allotted to investors at a fixed price or investors can be provided a price band for making their bids. And based on the demand and supply for the shares in the market, cut-off price or the issue price for the floated shares is determined. This process involving the provision of a price band for the investor class for issuance of securities is referred as book building.
Company Issuing securities and Lead Manager complete book building process
The company raising fund capital to effect the book-building process appoint lead manager and an investment bank for making the issue public. Size of the issue or the maximum capital that will be raised through the issue as well as the price band is determined by the lead manager and the issuing company. Following, based on the bids from the investor for the issued securities as well as the demand-supply market forces for the securities in the market, cut-off price or the price at which the securities would be issued to the public is decided and finally securities are issued to investors. Accordingly, letters of allotment or refund are send across to the investors.
Further, as the bidding for shares of the company in the book building process is done within the provided price band; the lowest price referred as the floor price and the maximum price as the cap price, the demand for the securities is known on a daily basis unlike in case when the securities are issued at a fixed price.
Book-building vs Reverse Book building
Book building seems to be a much known term in contrast to reverse book building. So how the two process are different? While book-building as well as reverse book building process both facilitate price discovery, book-building methodology is adopted when a company plans to raise capital and the other is applied when the company voluntarily engaged in delisting of shares. Similar to the book building process, for buying back the shares, shareholders of the company can make bids a either the floor price or at a higher price. Maximum bids at a particular price then determines the discovered price I.e the price at which the company buys back shares from the public.
SEBI in a move to simplify the delisting process for companies is making plans on examining the complete structure of delisting that includes the number of shares to be bought back from public shareholders and price discovery to effect the delisting process among others.

25 comments :

  1. Pls share ur view on selan exploration.

    ReplyDelete
  2. Sir, please share your views on Pittie Laminations

    ReplyDelete
  3. Sir,
    Your view on SPML Infra if you can share.

    thnx

    ReplyDelete
  4. Thanks for sharing the article VP sir.

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  5. Sir, Ansal buildwell, asset value of 5000 cr and entrepreneur value is only 100 cr, if u can through some light on it???

    ReplyDelete
    Replies
    1. Not tracking it. The term is Enterprise value not entrepreneur value

      Delete
  6. Sir, Do you track godrej group of companies? If yes, what is your view on them in long term. Do they qualify for SIPing for 10 years?

    ReplyDelete
    Replies
    1. Already suggested Godrej Industries , not strictly tracking others

      Delete
  7. Very informative article . Thanks Sir.

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  8. Due to technical reasons, facing some difficulty to approve and reply comments . Hope the same will be resolved soon.

    ReplyDelete
  9. VP Sir, thanks a ton for sharing such a wealth of knowledge.

    Sir , need your advice on DHFL . Can I continue to hold it.

    ReplyDelete
    Replies
    1. Those with some risk appetite can still hold

      Delete
  10. Dear sir,
    I have a question here....its related to de-listing. If one stocks gets delisted, the company gives 1 year time to retail investors to sell the shares back to company.... Now as a retail investor I choose to not to sell even after an year, what are my options? Could I still keep them or could I demand a higher price from company or company can forcibly take stocks ? This query is art to Manjhushree technopack which has delisted recently.

    Thanks,
    Ramesh

    ReplyDelete
    Replies
    1. Lot of companies are trying various methods to take back stocks including consolidation of face value which may result fractional holdings and then compulsory buy back ..

      Delete
  11. Sir, Is your old recommendation DFM Foods a buy at 300?

    ReplyDelete
  12. Sir please share your valuable opinion on

    1)Persistent
    2)Granules
    3)Atul Auto

    ReplyDelete
    Replies
    1. All these stocks are already recommended and nothing new to add at this point

      Delete
  13. Sir, please reply on timex industriesand prakash industries. Both are ur previous recommendations and need ur views

    ReplyDelete
  14. Sir, can you share your views on IDFC?

    Thanks,
    Maunil

    ReplyDelete
  15. Sir , Please advice whether one can add Patels airtemp at current price.. I already have in small quantity.. Please advice.. Thanks for all your help...

    ReplyDelete
  16. Sir, any view on kennametal India? Thanks.

    ReplyDelete
  17. What is your on the recent news of scam of IL&FS Engineering ?
    http://zeenews.india.com/news/videos/ilfs-1700-crore-scam-in-nagaland-road-project_1581998.html

    ReplyDelete

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