Answer» - The method of offering shares by providing a price range is called the book building method.
- In the book, building method shares will be sold by the bidding process.
- The company issues a Red Herring Prospectus which contains a price range or price band and as the investor to bid on it.
- In this method, the company doesn’t fix up a particular price for the share but gives a price range e.g., ₹ 80 to ₹ 100.
- When bidding for the shares, investors have to decide at which price they would like to bid for the shares e.g. ₹ 80, ₹ 90, ₹ 100.
- The lower price band (₹ 80) is known as the floor price and the highest price band (₹ 100) is known as the cap price. The final price at which shares are offered to investors is called the cut-off price.
- Board on the demand and supply of the shares, decides the final price is to be fixed.
- Investors can bid on any number of shares that they are willing to buy at a given price band. Such Bidding is kept open for 5 days.
- The bids with application money are to be submitted to the Lead Merchant Bankers called ‘Book Runners’ who enter the bids in a book.
- After bidding, the company fixes a cutoff price at which shares on offer can be sold.
- The company issues a prospectus that contains the final price.
- Book Building method is used for public issues i.e., IPO and FPO.
|
