Zeeshan Saeed Ayesha Rishi Sidra Waheed Bushra

What Is Book Building?

Book building refers to the process of generating,

capturing and recording investor demand for shares during an IPO, in order to support efficient Price Discovery
The issuer appoints a major investment bank to act as a

major securities underwriter or book runner

IPO and BookBuilding

IPO before BookBuilding Buying of shares on fixed price. IPO after BookBuilding

Share prices between a specified price band

Price band
It refers to the band within which the investors can bid. The spread between the floor and the cap of the price band is not be more than 20%

Example:
Floor Price = Rs 20 The spread between the floor and the cap of 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

Difference Between Fixed Price Process and Book Building Process

Features

Fixed Price process

Book Building process

Pricing

Price at which the securities are offered/allotted is known in advance to the investor.

Price at which securities will be offered/allotted is not known in advance to the investor. Only an indicative price range is known.

Demand

Demand for the securities offered is known only after the closure of the issue

Demand for the securities offered can be known everyday as the book is built.

Payment

Payment if made at the time of subscription wherein refund is given after allocation.

Payment only after allocation.

BOOK BUILDING BID ENTRY

Why Book Building?

This process will help to discover the demand and the price of the shares. also, the costs of public issue are much reduced and the time taken for completion of the entire process is much less than the in the normal public issue.

Example
A company ABC wants to sell 3000 shares through Book Building Process at a price band of Rs 20 24 Company received bids from 5 bidders in the following manner:

Bid Quantity

Bid Price (Rs)

Cumulative Quantity

Subscription

500 1000 1500 2000 2500

24 23

500 1500

16.67% 50%

22
21 20

3000
5000 7500

100%
166.67% 250%

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

 The Retail Individual Investor (RII) Non-Institutional Investor (NII) Qualified Institutional Buyers (QIBs)

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 are known as Non-institutional bidders.

Qualified Institutional Bidders (QIB's) Financial Institutions, Banks, FII's and Mutual Funds who are registered with SECP are called QIB's. They usually apply in very high quantities.

Division of shares in 100% Book Building

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.

Benefits of Book Building

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

Limitations of Book Building System

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.

Contd
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.

First book building transaction concludes

KARACHI, Oct 31 Pakistan Stock market`s first ever offer for sale of shares via Book Building process was successfully concluded on Thursday nov, 2009 by the book runner, AKD Securities Limited, a statement by the company said. It stated that the book building for issuer Ghani Gases Limited stipulated confirmed bids for 8.6 million shares against an offer of 6.0 million shares with the floor price of the issue at Rs13.50 per share. The strike price determined through the process of Dutch Auction Method was calculated at Rs14.00 per share. The issue was oversubscribed by over 43pc.

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.

CONCLUSION
Book Building process aims at fair pricing of the issue which is supposed to emerge out of offers made by various investors. One question may arise whether book building is the right mechanism for fair pricing discovery in IPOs? The answer may be in the negative because a floor price is fixed for the Book Building below which no bid can be accepted. Since investors participate through Book Building process in making fair pricing of IPOs where there is no ceiling price, there should not be any floor price. However, the book building process expected to increase substantially the number of IPOs which in turn will offer the investors with additional investment opportunities and also enhance the size and depth of the securities market.

THANK YOU!