Book structure: Book structure is a popular method in the context of an Initial public deal, used to determine the price at which the shares have to be provided.
SEBI guidelines defines Book Building as “a procedure undertaken by which the need for the securities proposed to be released by a body corporate is generated and built-up and the price for such securities is examined for the determination of the quantum of such securities to be released by methods of a notice, circular, ad, file or information memoranda or offer document”.
Typically, business while creating an initial public offer (IPO), use 2 methods particularly repaired prices or book structure as a mechanism to choose the concern rate. For many years, since of book structure has ended up being more chose option for pricing the securities in IPO.
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How Book constructing works?
When a company desires to go and provide their shares to the public by way of Preliminary public deal, it has to price the shares at which they will be provided. If the company is not sure about the precise cost at which their shares can be offered, they can set up a price range asking the financiers to bid their rates at which they are ready to buy the shares. The bids are gathered from financiers at various costs, which are within the price band defined by the company.
Book structure process:
- The business which is preparing to choose an IPO through book structure will select a merchant banker as ‘book runner’.
- A draft prospectus is issued including all the disclosures in accordance with SEBI regulations
- The issuer will define the variety of shares to be issued and the price range for the quotes. The lower end of the rate variety is called as the floor cost and the higher end is called as the ceiling rate.
- Then the book runners will select syndicate members who will take the orders from the investors.
- Later on throughout the duration for which the bidding is open, financiers will bid their rates together with the number of shares they are willing to buy. Generally in India, the book is open for a duration of 5 days for bidding.
- On the basis of different estimate in the bids, final price will be figured out by the provider. This price is called cut-off rate. Generally the weighted average of all the rates got in the bids is fixed as cut-off cost.
- At the end, securities will be assigned to the successful bidders and the refund orders will be started for the remainder of the bidders.
According to SEBI standards, an issuer company may, subject to the requirements defined in these standards, make an issue of securities to the general public through a prospectus in the following way:
| 1 | 100% of the net deal to the general public through book building procedure, or |
| 2 | 75% of the net deal to the general public through book building process and 25% at the price figured out through book building. |
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