Answer in Brief
Answer in brief.
What is Book Building Method?
Book Building Method is one of the pricing methods that a company can use for Public issue or offer.
- Under this method, the issuer company determines the number of shares and the issue price at which its shares will be sold by the bidding process.
- The company issues a Red Herring Prospectus which contains a price range or price band and asks the investors to bid on it.
- Here, the minimum price of bid is called 'Floor Price' or 'Ask Price and the maximum price of bid is called 'Cap Price or 'Bid Price'.
- The final price at which shares are offered to the investors is called as 'Cut-Off price. The bids along with the application money is to be submitted to the Lead Merchant Bankers called as 'Book Runners' who enter the bids in a book.
- After bidding is over, the company fixes 'cut off-price' based on the highest or best price at which all shares on offer can be sold.
- After bidding is over, company fixes ‘cut off price’ based on the highest or best price at which all shares on offer can be sold.
- Company issues a prospectus which contains the final price. Book building method is used for public issues i.e. IPO and FPO.
Concept: Transfer of Shares
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