BOOK BUILDING 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. Book building is actually a price discovery method. It is the process by which an underwriter attempts to determine at what price to offer an IPO based on demand from institutional investors. An underwriter "builds a book" by accepting orders from fund managers indicating the number of shares they desire and the price they are willing to pay. The issue price is not determined in advance rather the issue price is determined after the bid closure based on the demand generated from investors at various prices. In this method, the company doesn't fix up a particular price for the shares, but instead gives a price range, e.g. Rs 80-100. When bidding for the shares, investors have to decide at which price they would like to bid for the shares, for e.g. Rs 80, Rs 90 or Rs 100. They can bid for the shares at any price within this range. Based on the demand and supply of the shares, the final price is fixed. The lowest price (Rs 80) is known as the floor price and the highest price (Rs 100) is known as cap price. The price at which the shares are allotted is known as cut off price. Process of Book Building The entire process begins with the selection of the lead manager, an investment banker whose job is to bring the issue to the public. 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. Guidelines for Book Building Rules governing Book building are covered in Chapter XI of the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines 2000. BSE's Book Building System BSE offers a book building platform through the Book Building software that runs on the BSE Private network. This system is one of the largest electronic book building networks

in the world, spanning over 350 Indian cities through over 7000 Trader Work Stations via leased lines, VSATs and Campus LANS. PROJECT FINANCING Definition of 'Project Finance' by the International Project Finance Association (IPFA) as the following: The financing of long-term infrastructure, industrial projects and public services based upon a non-recourse or limited recourse financial structure where project debt and equity used to finance the project are paid back from the cash flow generated by the project. Project finance is especially attractive to the private sector because they can fund major projects off balance sheet based on the cash flows of the project. The financiers usually have little or no recourse to the non-project assets of the borrower. Key characteristics of Project Financing 1. Financing of long term infrastructure and/or industrial projects using debt and equity. 2. Debt is typically repaid using cash flows generated from the operations of the project. Limited recourse to project sponsors. ( Higher risk projects may require the surety/guarantees of the project sponsors) 3. Debt is typically secured by projects assets, including revenue producing contracts. First priority on project cash flows is given to the Lender. Consent of the Lender is required to disburse any surplus cash flows to project sponsors Advantages of Project Financing 1. 2. 3. 4. 5. 6. 7. 8. Eliminate or reduce the lenders recourse to the sponsors. Permit an off-balance sheet treatment of the debt financing. Maximize the leverage of a project. Avoid any restrictions or covenants binding the sponsors under their respective financial obligations. Avoid any negative impact of a project on the credit standing of the sponsors. Obtain better financial conditions when the credit risk of the project is better than the credit standing of the sponsors. Allow the lenders to appraise the project on a segregated and stand-alone basis. Obtain a better tax treatment for the benefit of the project, the sponsors or both.

Disadvantages of Project Financing 1. 2. 3. 4. Often takes longer to structure than equivalent size corporate finance. Higher transaction costs due to creation of an independent entity. Project debt is substantially more expensive due to its non-recourse nature. Extensive contracting restricts managerial decision making.

5. Project finance requires greater disclosure of proprietary information and strategic deals. Stages in Project Financing I. Pre Financing Stage Project identification Risk identification & minimizing Technical and financial feasibility Financing Stage Equity arrangement Negotiation and syndication Commitments and documentation Disbursement. Post Financing Stage Monitoring and review Financial Closure / Project Closure Repayments & Subsequent monitoring.

II.

III.