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".
Book Building is basically a process used in Initial Public Offer (IPO) for efficient price discovery. It is a mechanism where, during the period for which the IPO is open, bids are collected from investors at various prices, which are above or equal to the floor price. The offer price is determined after the bid closing date.
As per SEBI guidelines, an issuer company can issue securities to the public though prospectus in the following manner:
- 100% of the net offer to the public through book building process
- 75% of the net offer to the public through book building process
Difference between Book Building Issue and Fixed Price Issue
In Book Building securities are offered at prices above or equal to the floor prices, whereas securities are offered at a fixed price in case of a public issue. In case of Book Building, the demand can be known everyday as the book is built. But in case of the public issue the demand is known at the close of the issue.
What is Reverse Book Building (Delisting of shares)?
The Reverse Book Building is a mechanism provided for capturing the sell orders on online basis from the shareholders through respective Book Running Lead Managers (BRLMs) which can be used by companies intending to delist its shares through buy back process. In the Reverse Book Building scenario, the Acquirer/Company offers to buy back shares from the shareholders. The Reverse Book Building is basically a process used for efficient price discovery. It is a mechanism where, during the period for which the Reverse Book Building is open, offers are collected from the shareholders at various prices, which are above or equal to the floor price. The buy back price is determined after the offer closing date
Business process for delisting through book building is as follows:
- The acquirer shall appoint designated Book Running Lead Manager (BRLM) for accepting offers from the shareholders.
- The company/acquirer intending to delist its shares through Book Building process is identified by way of a symbol assigned to it by BRLM.
- Orders for the offer shall be placed by the shareholders only through the designated trading members, duly approved by the Exchange.
- The designated trading members shall ensure that the security / shareholders deposit the securities offered with the trading members prior to placement of an order.
- The offer shall be open for 'n' number of days.
- The BRLM shall intimate the final acceptance price and provide the valid accepted order file to the National Securities Clearing Corporation Limited (A wholly owned subsidiary of NSE carrying out clearing and responsible for settlement operations.)
SEBI guidelines shall be applicable to delisting of securities of companies and specifically apply to:
- Voluntary delisting being sought by the promoters of a company.
- Any acquisition of shares of the company (either by a promoter or by any other person) or scheme or arrangement, by whatever name referred to, consequent to which the public shareholding falls below the minimum limit specified in the listing conditions or listing agreement that may result in delisting of securities.
- Promoters of the companies who voluntarily seek to delist their securities from all or some of the stock exchanges.
- Cases where a person in control of the management is seeking to consolidate his holding in a company, in a manner which would result in the public shareholding or in the listing agreement that may have the effect of company being delisted.
- Companies which may be compulsorily delisted by the stock exchanges.
NSE Reverse Book Building System
NSE uses the reverse book building system; a fully automated screen based bidding system that allows offers to run in several issues concurrently. The system has the facility of defining a hierarchy amongst the users of the system. The Book Running Lead Manager can define who will be the Syndicate member and who will be the other members participating in the issue. The Syndicate Member and other Members also have a facility of defining a hierarchy among the users of the system as Corporate Manager, Branch Manager and Dealer.
The Book Running Lead Manager will give the list of trading members who are eligible to participate in the Book Building process to the Exchange. Members have to submit a one-time undertaking to the Exchange. Eligible trading members have to give in the prescribed format details of the user IDs that they would like to use.
List of Approved Trading Members:
ICICI Brokerage Services Limited.
- Karvy Stock Broking Limited.
- Master Capital Services Limited.
Subscribers can approach any of the approved trading members for submitting offers in the NEAT IPO system. Online transaction registration slips are generated automatically after entering the offers in to the system, which acts as proof of the registration of each offer.What is ‘IPO grading’?
IPO grading (initial public offering grading) is a service aimed at facilitating the assessment of equity issues offered to public. The grade assigned to any individual issue represents a relative assessment of the ‘fundamentals’ of that issue in relation to the universe of other listed equity securities in India. Such grading is assigned on a five-point point scale with a higher score indicating stronger fundamentals.
How is IPO grading different from an investment recommendation?
Investment recommendations are expressed as ‘buy’, ‘hold’ or ‘sell’ and are based on a security specific comparison of its assessed ‘fundamentals factors’ (business prospects, financial position etc.) and ‘market factors’ (liquidity, demand supply etc.) to its price.
On the other hand, IPO grading is expressed on a five-point scale from grade 5 (indicating strong fundamentals) to grade 1 (indicating poor fundamentals). The grade would l read as:" Rating Agency name " IPO Grade 1 viz CARE IPO Grade 1, CRISIL IPO Grade 1 etc.and is a relative comparison of the assessed fundamentals of the graded issue to other listed equity securities in India.
As the IPO grading does not take cognizance of the price of the security, it is not an investment recommendation. Rather, it is one of the inputs to the investor to aiding in the decision making process. All other things remaining equal, a security with stronger fundamentals would command a higher market price.
What is the requirement for IPO grading?
SEBI has been taking a pioneering role in investor protection by increasing disclosure levels by entities seeking to access equity markets for funding. This has caused India to be amongst one of the more transparent and efficient capital markets in the world. However, these disclosures demand fairly high levels of analytical sophistication of the reader in order to effectively achieve the goal of information dissemination.
IPO grading is positioned as a service that provides ‘an independent assessment of fundamentals’ to aid comparative assessment that would prove useful as an information and investment tool for investors. Moreover, such a service would be particularly useful for assessing the offerings of companies accessing the equity markets for the first time where there is no track record of their market performance.
How will IPO grading meet this requirement?
The IPO grade assigned to any issue represents a relative assessment of the ‘fundamentals’ of that issue in relation to the universe of other listed equity securities in India. This grading can be used by the investor as tool to make investment decision. The IPO grading will help the investor better appreciate the meaning of the disclosures in the issue documents to the extent that they affect the issue’s fundamentals. Thus, IPO grading is an additional investor information and investment guidance tool.
Who will carry out the IPO grading?
Credit Rating agencies (CRAs) registered with SEBI will carry out IPO grading.
Does SEBI have a role in the grading exercise?
No. SEBI does not play any role in the assessment made by the grading agency. The grading is intended to be an independent and unbiased opinion of that agency.
Is this IPO grading mandatory?
No. IPO grading is optional.
Validity of grade assigned
The assigned grade would be a one time assessment done at the time of the IPO and meant to aid investors who are interested in investing in the IPO. The grade will not have any ongoing validity.
How can a company get its IPO graded?
- The company needs to first contact one of the grading agencies and mandate it for the grading exercise. The agency would then follow the process outlined below.
- Seek information required for the grading from the company.
- On receipt of required information, have discussions with the company’s management and visit the company’s operating locations, if required.
- Prepare an analytical assessment report
- Present the analysis to a committee comprising senior executives of the concerned grading agency. This committee would discuss all relevant issues and assign a grade
- Communicate the grade to the company along with an assessment report outlining the rationale for the grade assigned.
Though this process will ideally require 2-3 weeks for completion, it may be a good idea for companies to initiate the grading process about 6-8 weeks before the targeted IPO date to provide sufficient time for any contingencies.
Does the company have to accept the grade assigned?
CRAs have to forward the names and details of IPOs graded by them on monthly basis to SEBI/ Stock Exchanges for uploading on their website for public information. As such the company which has opted for IPO grading, does not have a choice in accepting or rejecting the grade. The IPO grading given by CRAs, shall form part of the prospectus for the IPO.
What can the company do if it is not satisfied with the grade assigned?
The company has no choice in this regard. If it has opted for IPO grading, the same needs to be disclosed in the Prospectus.
Who would pay for the grading exercise?
The cost of grading IPOs shall be borne from investor protection funds administered by Stock Exchanges or from IEPF administered by Ministry of Companies Affairs.
Securities Market Awareness Campaign (SMAC).
‘An Educated Investor is a Protected Investor.’
The campaign was launched at the national on January 17, 2003.
The structural foundation of the campaign is based on workshops that are being conducted all across the country with the continued and active participation of market participants, market intermediaries, Investors Associations etc., to spread SEBI’s message of “Invest With Knowledge”.
Approaches of SEBI for investor protection
- Workshops – conducted More than 633 workshops have been conducted in around 300 cities/towns in the country
- Educative materials – translated into 10 major regional languages
- Website – http://investor.sebi.gov.in – Internet based response system.
- Advertisements – 700 advertisements relating to various aspects of Securities Market have appeared in 48 different newspapers/ magazines, covering approximately 111 cities and 9 regional languages, apart from English and Hindi.
- AIRv TV
concerns of the investors on transfer of securities in dematerialized mode
The concerns arising out of transfer of securities from the Beneficial Owner (BO) Accounts without proper authorization by the concerned investor have been brought to the notice of SEBI by some Investors’ Associations. The issue was discussed by the Secondary Market Advisory Committee (SMAC) of SEBI.
Based on the recommendations of the SMAC and in consultation with the depositories, it has been decided to put in place the following safeguards to address the concerns of the investors on the captioned subject.
The depositories shall give more emphasis on investor education particularly with regard to careful preservation of Delivery Instruction Slip (DIS) by the BOs. The Depositories may advise the BOs not to leave “blank or signed” DIS with the Depository Participants (DPs) or any other person/entity.
- The DPs shall not accept pre-signed DIS with blank columns from the BO(s).
- The DPs shall issue only one DIS booklet containing not more than 20 slips for individual account holders and not more than 100 slips for non-individual account holders, at a time.
- If the DIS booklet is lost / stolen / not traceable by the BO, the same must be intimated to the DP immediately by the BO in writing. On receipt of such intimation, the DP shall cancel the unused DIS of the said booklet.
- The DPs can issue subsequent DIS booklet to a BO only after the BO has used not less than 75% of the slips contained in the previous DIS booklet. The DP shall also ensure that a new DIS booklet is issued only on the strength of the DIS instruction request slip (contained in the previous booklet) duly complete in all respects, unless the request for fresh booklet is due to loss, etc.,
- The DPs shall not issue more than 10 loose DIS to one accountholder in a financial year (April to March). The loose DIS can be issued only if the BO(s) come in person and sign the loose DIS in the presence of an authorised DP official.
- The DPs shall put in place appropriate checks and balances with regard to verification of signatures of the BOs while processing the DIS.
- The DPs shall cross check with the BOs under exceptional circumstances before acting upon the DIS.
- The DPs shall mandatorily verify with a BO before acting upon the DIS, in case of an account which remained inactive i.e., where no debit transaction had taken place for a continuous period of 6 months, whenever all the ISIN balances in that account (irrespective of the number of ISINs) are transferred at a time. However, in case of active accounts, such verification may be made mandatory only if the BO account has 5 or more ISINs and all such ISIN balances are transferred at a time. The authorized official of the DP verifying such transactions with the BO, shall record the details of the process, date, time, etc., of the verification on the instruction slip under his signature.
- All DPs to communicate to SEBI the status of implementation of the provisions of these in the Monthly Development Report.