What Is Book Building Method In Nepal Share Market?
Generally, IPOs can be of two types – a fixed price issue, and a book building issue. In a fixed price issue, the price of the offerings are evaluated by the company. Book building method is a mechanism of analysing the demand of the potential investors for shares. In simple definiton, It is the process to determine the highest market price for shares.
What Is Book Building Method In Nepal Share Market?
An underwriter attempts to determine the price at which an initial public offering (IPO) will be offered to the general public. They invites the potential investors to submit bids for the shares and the price they would be willing to pay for the shares. Normally they invites bulk buyers or insitutional investors and fund managers, to submit bids on the number of shares and the prices that they would be willing to pay. Shares are allocated to the accepted bidders. During the period for which the IPO is open, the bids are collected from investors with their share at various prices, which are above or equal to the floor price. The offer price is determined after the bid closing date.
In Nepal Sarbottam Cement is going to issue IPO to the general public through the book building method. Book building allows a company to issue IPO at a higher price instead of issuing at Rs. 100 per share. Meanwhile, CRA Nepal has assigned a rating of [ICRANP-IR] BBB+ to Sarbottam Cement Limited.
Example:
50000 applicants applied at Rs 430, 80000 at Rs 440, 90000 at for Rs 450, 19000 units for Rs 460 and finally, 6000 at Rs 470. In this case, the bid price of Rs 450 has the maximum applicants. So, the cut off price will be determined at Rs 450. Here the buying price of the share will be Rs 450. The applicants who bid below the cut off price,at Rs 440 and Rs 230 will not be allocated the shares. However, those applicants who applied at the cut off price(450) or above will be allocated with the shares.
