"Book Building is basically a capital issuance process used in Initial Public Offer (IPO) which aids price and demand discovery. It is a process used for marketing a public offer of equity shares of a company. It is a mechanism where, during the period for which the book for the IPO is open, bids are collected from investors at various prices, which are above or equal to the floor price. The process aims at tapping both wholesale and retail investors. The offer/issue price is then determined after the bid closing date based on certain evaluation criteria.

SEBI Regulations titled "Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines 2000." under Chapter XI cover Book-Building. As per these Regulations "Book Building" means 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."

SEBI has permitted book building under two schemes:

1. 75% Book Building Process - As per this option "In an issue of securities to the public through a prospectus the option for 75% book building shall be available to the issuer company"

2. Offer to Public Through Book Building Process -

   According to this option an issuer company may, make an issue of securities to the public through a prospectus in the following manner: -

   1. 100% of the net offer to the public through book building process, or

   2. 75% of the net offer to the public through book building process and 25% at the price determined through book building.)

1. The option of book-building shall be available to all body corporate which are otherwise eligible to make an issue of capital to the public.

2. 1. The book-building facility shall be available as an alternative to, and to the extent of the percentage of the issue which can be reserved for firm allotment, as per these Guidelines.

   2. The issuer company shall have an option of either reserving the securities for firm allotment or issuing the securities through book-building process.

3. The issue of securities through book-building process shall be separately identified / indicated as 'placement portion category', in the prospectus.

4. 1. The securities available to the public shall be separately identified as 'net offer to the public'.

   2. The requirement of minimum 25% of the securities to be offered to the public shall also be applicable.

5. In case the book-building option is availed of, underwriting shall be mandatory to the extent of the net offer to the public.

6. The draft prospectus containing all the information except the information regarding the price at which the securities are offered shall be filed with the Board.

7. One of the lead merchant banker to the issue shall be nominated by the issuer company as a Book Runner and his name shall be mentioned in the prospectus.

8. 1. The copy of the draft prospectus filed with the Board may be circulated by the Book Runner to the institutional buyers who are eligible for firm allotment and to the intermediaries eligible to act as underwriters inviting offers for subscribing to the securities.

   2. The draft prospectus to be circulated shall indicate the price band within which the securities are being offered for subscription.

9. The Book Runner on receipt of the offers shall maintain a record of the names and number of securities ordered and the price at which the institutional buyer or underwriter is willing to subscribe to securities under the placement portion.

10. The underwriter(s) shall maintain a record of the orders received by him for subscribing to the issue out of the placement portion.

11.  

    1. The underwriter(s) shall aggregate the offers so received for subscribing to the issue and intimate to the Book Runner the aggregate amount of the orders received by him.

    2. The institutional investor shall also forward its orders, if any, to the book runner.

12. On receipt of the information, the Book Runner and the issuer company shall determine the price at which the securities shall be offered to the public.

13. The issue price for the placement portion and offer to the public shall be the same.

14. On determination of the price of the underwriter shall enter into an underwriting agreement with the issuer indicating the number of securities as well as the price at which the underwriter shall subscribe to the securities.

    Provided that the Book Runner shall have an option of requiring the underwriters to the net offer to the public to pay in advance all monies required to be paid in respect of their underwriting commitment.

15. On determination of the issue price within two day, thereafter the prospectus shall be filed with the Registrar of Company.

16. The issuer company shall open two different accounts for collection of application moneys, one for the private placement portion and the other for the public subscription.

17. One day prior to the opening of the issue to the public, Book Runner shall collect from the institutional buyers and the underwriters the application forms along with the application moneys to the extent of the securities proposed to be allotted to them / subscribed by them

18. 1. Allotments for the private placement portion shall be made on the second day from the closure of the issue.

    2. However, to ensure that the securities allotted under placement portion and public portion are pari passu in all respects, the issuer company may have one date of allotment which shall be the deemed date of allotment for the issue of securities through book building process.

19. In case the Book Runner has exercised the option of requiring the underwriter to the net offer to the public to pay in advance all moneys required to be paid in respect of their underwriting commitment by the eleventh day of the closure of the issue the shares allotted as per the private placement category shall be eligible to be listed.

20. 1. Allotment of securities under the pubic category shall be made as per the Guidelines.

    2. Allotment of securities under the public category shall be eligible to be listed.

21.  

    1. In case of under-subscription in the net offer to the public spillover to the extent of under subscription shall be permitted from the placement portion to the net offer to the public portion subject to the condition that preference shall be given to the individual investors.

    2. In case of under subscription in the placement portion spillover shall be permitted from the net offer to the public to the placement portion.

22. The issuer company may pay interest on the application moneys till the date of allotment or the deemed date of allotment provided that payment of interest is uniformly given to all the applicants.

23. 1. The Book Runner and other intermediaries associated with the book building process shall maintain records of the book building process.

    2. The Board shall have the right to inspect such records.

1. Deleted

2. Reservation or firm allotment to the extent of percentage specified in these Guidelines shall not be made to categories other than the categories mentioned in sub-clause (iii) below.

3. Book Building shall be for the portion other than the promoters contribution and the allocation made to;

   1. 'permanent employees of the issuer company and in the case of a new company the permanent employees of the promoting companies';

   2. 'shareholders of the promoting companies in the case of a new company and shareholders of group companies in the case of an existing company' either on a 'competitive basis' or on a 'firm allotment basis'.

   3. (persons who, on the date of filing of the draft offer document with the Board, have business association, as depositors, bondholders and subscribers to services, with the issuer making an initial public offering, provided that allotment to such persons shall not exceed 5% of the issue size.

    Provided further that no reservation shall be made for the issue management team, syndicate members, their promoters, directors and employees and for the group/associate companies of issue management team and syndicate members and their promoters, directors and employees.)

4.  

   1. The issuer company shall enter into an agreement with one or more of the Stock Exchange(s) which have the requisite system of on-line offer of securities. The agreement shall specify inter-alia, the rights, duties, responsibilities and obligations of the company and stock exchange (s) inter se. The agreement may also provide for a dispute resolution mechanism between the company and the stock exchange.

   2. The company may apply for listing of its securities on an exchange other than the exchange through which it offers its securities to public through the on-line system

5. The Lead Merchant Banker shall act as the Lead Book Runner.

   1. In case the issuer company appoints more than one merchant banker, the names of all such merchant bankers who have submitted the due diligence certificate to SEBI, may be mentioned on the front cover page of the prospectus. A disclosure to the effect that " the investors may contact any of such merchant bankers, for any complaint pertaining to the issue" shall be made in the prospectus, after the "risk factors)

   2. The lead book runner/issuer may designate, in any manner, the other Merchant Banker(s), subject to the following :

      1. the inter-se allocation of responsibilities amongst the merchant bankers shall be disclosed in the prospectus on the page giving the details of the issue management team;

      2. a co-ordinator shall be appointed amongst the lead book runners, for the purpose of co-ordination with SEBI. the names of only those merchant bankers who have signed the inter-se allocation of responsibilities shall be mentioned in the offer document on the page where the details of the issue management team is given.)

6. The primary responsibility of building the book shall be that of the Lead Book Runner.

7. The Book Runner(s) may appoint those intermediaries who are registered with the Board and who are permitted to carry on activity as an 'Underwriter' as syndicate members.

   1. The Book Runner(s)/syndicate members shall appoint brokers of the exchange, who are registered with SEBI, for the purpose of accepting bids, applications and placing orders with the company and ensure that the brokers so appointed are financially capable of honouring their commitments arising out of defaults of their clients/investors, if any.

   2. For the purposes of this Chapter, the brokers, so appointed accepting applications and application monies, shall be considered as ‘bidding/collection centres’.

   3. The broker/s so appointed, shall collect the money from his/their client for every order placed by him/them and in case the client/investors fails to pay for shares allocated as per the Guidelines, the broker shall pay such amount.

   4. The company shall pay to the broker/s a commission/fee for the services rendered by him/them. The exchange shall ensure that the broker does not levy a service fee on his clients/investors in lieu of his services

8. The draft prospectus containing all the disclosures as laid down in Chapter VI except that of price and the number of securities to be offered to the public shall be filed by the Lead Merchant Banker with the Board.

    Provided that the total size of the issue shall be mentioned in the draft prospectus.

1. The red herring prospectus shall disclose, either the floor price of the securities offered through it or a price band along with the range within which the price can move, if any.)

2. In case the red herring prospectus discloses the price band, the lead book runner shall ensure compliance with the following conditions:

   1. The cap of the price band should not be more than 20% of the floor of the band; i.e cap of the price band shall be less than or equal to 120% of the floor of the price band

   2. The price band can be revised during the bidding period in which case the maximum revision on either side shall not exceed 20% i.e floor of price band can move up or down to the extent of 20% of floor of the price band disclosed in the red herring prospectus and the cap of the revised price band will be fixed in accordance with Clause (a) above;

   3. Any revision in the price band shall be widely disseminated by informing the stock exchanges, by issuing press release and also indicating the change on the relevant website and the terminals of the syndicate members.

   4. In case the price band is revised, the bidding period shall be extended for a further period of three days, subject to the total bidding period not exceeding thirteen days.

   5. The manner in which the shortfall, if any, in the project financing, arising on account of lowering of price band to the extent of 20% will be met shall be disclosed in the red herring prospectus. It shall also be disclosed that the allotment shall not be made unless the financing is tied up.

9. 1. In case of appointment of more than one Lead Merchant Banker or Book Runner for book building, the rights, obligations and responsibilities of each should be delineated.

   2. In case of an under subscription in an issue, the shortfall shall have to be made good by the Book Runner(s) to the issue and the same shall be incorporated in the interse allocation of responsibility given in Schedule II.

10.  

    1. The Board within 21 days of the receipt of the draft prospectus may suggest modifications to it.

    2. The Lead Merchant Banker shall be responsible for ensuring that the modifications / final observations made by the Board are incorporated in the prospectus.

11. 1. The issuer company shall after receiving the final observations if any on the offer document from the Board make an advertisement in an English National daily with wide circulation, one Hindi National newspaper and a Regional language newspaper with wide circulation at the place where the registered office of the Issuer company is situated.

    2. The advertisement so issued shall contain the salient features of the final offer document as specified in Form 2A of the Companies Act circulated along with the application form.

12. (Deleted

13. The pre-issue obligations and disclosure requirements as specified in Chapter V and VI respectively of these Guidelines, shall be applicable to issue of securities through book building unless stated otherwise in this Chapter.

14. The Book Runner(s) and the issuer company shall determine the issue price based on the bids received through the 'syndicate members'.

    1. (Retail individual investors may bid at "cut off" price instead of their writing the specific bid prices in the bid forms)

15. On determination of the price, the number of securities to be offered shall be determined (issue size divided by the price which has been determined).

16. Once the final price (cut-off price) is determined all those bidders whose bids have been found to be successful (i.e. at and above the final price or cut-off price) shall become entitle for allotment of securities.

17. No incentive, whether in cash or kind, shall be paid to the investors who have become entitled for allotment of securities.

    1. The broker may collect an amount to the extent of 100% of the application money as margin money from the clients/investors before he places an order on their behalf. The margin collected from categories other than Qualified Institutional Buyers shall be uniform across the book runner(s)/syndicate members, for each such category)

    2. (Bids for securities beyond the investment limit prescribed under relevant laws shall not be accepted by the syndicate members from any category of investors.)

18. On determination of the entitlement under sub-clause (xvi), the information regarding the same (i.e. the number of securities which the investor becomes entitled) shall be intimated immediately to the investors.

    1. (Renumbered)

19. The final prospectus containing all disclosures as per these Guidelines including the price and the number of securities proposed to be issued shall be filed with the Registrar of Companies.

20. Arrangement shall be made by the issuer for collection of the applications by appointing mandatory collection centres as per these Guidelines.

    1. (The online, real time graphical display of demand and bid prices at the bidding terminals, shall be made. The book running lead manager shall ensure the availability of adequate infrastructure for data entry of the bids on a real time basis.)

21. The investors who had not participated in the bidding process or have not received intimation of entitlement of securities may also make an application.