What is Initial Public Offerings (IPO)
There are many ways in which corporates raise capital from the Primary Market such as Initial Public Offerings (IPOs), Rights issue of shares, or private placement. Selling of securities to the general public through the primary market is known as IPO. The main feature of IPO funds is that such source of funds has no definite maturity as far as the corporate is concerned..
What is Book Building Process
Many corporates now a days raise capital, what is known as through "Book Building" Route SEBI guidelines defines Book Building as "a process undertaken by which a demand for the securities proposed to be issued by a body corporate is elicited and built-up and the price for such securities is assessed for the determination of the quantum of such securities to be issued by means of a notice, circular, advertisement, document or information memoranda or offer document".
In other words, Book Building Process is a mechanism used in IPO for price discovery in a more efficient manner, depending on the supply demand position. Under Book Building route, bids are collected from investors at various prices, which are indicated in the price band indicated in the offer document.
The final offer pric is determined on the basis of such bids submitted.
SEBI guidelines indicate the manner in which an issuer company can issue securities to the public though prospectus in the following manner:
A. 100% of the net offer to the public through book building process
B. 75% of the net offer to the public through book building process and 25% at the price determined through book building.
The Fixed Price portion is conducted like a normal public issue after the Book Built portion, during which the issue price is determined. The Book Building process though in its initial phase in India, is common in almost all developed countries. The difference in Fixed Price Issue and Book Building Issue is whereas in Fixed price issues securities are issued at a predetermined fixed price and the demand for the public issue of shares is known only after issue is closed. In case of Book Building Issue, the securities are issued which may be above or equal to the floor price set by the company, and the response to the offer is known every day.