Through this method, IPO is issued to the public only after initially selling the shares to the institutional investors. The guideline issued by the Securities and Exchange Board states that the base price of the securities should be determined by studying the intent value obtained from qualified institutional investors in book building. After the base price is fixed, the selling price limit of the securities will have to be determined.
For example, if a company is to issue an IPO through book-building, the company must first determine a price based on an evaluation of its financial condition. Institutional investors who have been deemed eligible by the Securities and Exchange Board (SEB) in book building will have to discuss the said price along with the basis.
Institutional investors can also agree on that price. And they may disagree. In case of disagreement, institutional investors will be able to submit the intent value. By studying the price, the company will determine the base price again. Once all these processes are completed, a base price is determined.
The price that will be maintained by adding 20% to the base price should be maintained by reducing the upper limit and the lower limit by 20% in the base price. Suppose the base price of a company is fixed at Rs. 500. The upper limit of the base price is Rs 600 and the lower limit is Rs 400. To bid on that price, you have to apply to the Securities and Exchange Board.
Eligible institutional investors should participate in the bidding within the limit after getting approval from the board. The cut-off price is determined on the basis of bidding. Finally, an IPO will be issued to the public with a 10% discount on the cut-off price.
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