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    Pricing of Ipos: Companies Eligible To Make Public Issue Can Freely Price Their Equity Shares or Any Security

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    anjali shilpa kajal
    This document discusses two methods for pricing initial public offerings (IPOs) - the fixed price method and book building method. It provides details on how the book building method works, including that it is a price discovery mechanism where investors bid for securities at different prices within an indicative price band set by the issuer. The issuer then determines a cut-off price based on the bids at which the securities are allotted.

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    Pricing of Ipos: Companies Eligible To Make Public Issue Can Freely Price Their Equity Shares or Any Security

    Uploaded by

    anjali shilpa kajal
    18 views5 pages
    This document discusses two methods for pricing initial public offerings (IPOs) - the fixed price method and book building method. It provides details on how the book building method works, including that it is a price discovery mechanism where investors bid for securities at different prices within an indicative price band set by the issuer. The issuer then determines a cut-off price based on the bids at which the securities are allotted.

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    This document discusses two methods for pricing initial public offerings (IPOs) - the fixed price method and book building method. It provides details on how the book building method works, including that it is a price discovery mechanism where investors bid for securities at different prices within an indicative price band set by the issuer. The issuer then determines a cut-off price based on the bids at which the securities are allotted.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    18 views5 pages

    Pricing of Ipos: Companies Eligible To Make Public Issue Can Freely Price Their Equity Shares or Any Security

    Uploaded by

    anjali shilpa kajal
    This document discusses two methods for pricing initial public offerings (IPOs) - the fixed price method and book building method. It provides details on how the book building method works, including that it is a price discovery mechanism where investors bid for securities at different prices within an indicative price band set by the issuer. The issuer then determines a cut-off price based on the bids at which the securities are allotted.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 5

    Pricing of IPOs

     Companies eligible to make public issue can freely price their


    equity shares or any security.

     Fixed Price Method


     Book Building Method
    Contd…

    Book Building Method


     Book Building is basically a price and demand discovery
    mechanism.

     Book-Building is a process wherein the issuer of securities


    asks investors to bid for his securities at different prices.
     These bids are within an indicative price-band, decided
    by the issuer. The issuer sets a floor price and a band.
     Here investors bid for different quantity of shares, at
    different prices.
     Considering these bids, the issuer determines a cut-off
    price, which is the price at which the securities are
    allotted.
    Contd…
    Book building mechanics

     Bids to remain open for at least 5 days

     Only electronic bidding is permitted

     Bidding demand is displayed at the end of every day.

     The lead manager analyses the demand generated and


    determines the issue price or cut-off price in
    consultation with the issuer.
     The cut-off price is the price discovered by the market. It is the price at
    which the shares are issued to the investors.
     Investors bidding at a price below the cut-off price are ignored.
    Example: Book building pricing
     Let’s say a company wants to issue
    10,00,000 shares. The floor price for one
    share of face value, Rs. 10, is Rs. 48 and
    the band is between Rs. 48 and Rs. 55.

     At Rs. 55, on the basis of bids received,


    the investors are ready to buy 2,00,000
    shares. So the cut-off price can not be set
    at Rs. 55 as only 2 lacs shares will be sold.
    Contd…
     So as a next step, the price is lowered to Rs54. At Rs.
    54, investors are ready to buy additional 4 lacs shares.
    So if the cut-off price is set at Rs. 54, 6 lacs shares
    will be sold. This still leaves 4 lacs shares to be sold.

     The price is now lowered to Rs. 53. At Rs. 53,


    investors are ready to buy additional 4 lacs shares.
    Now if the cut-off price is set at Rs. 53, all ten lacs
    shares will be sold.

     Investors who had applied for shares at Rs. 55 and Rs.


    54 will also be issued shares at Rs. 53.

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