Book Build Issue - Complete Guide

A Book Building Issue is a method used by companies to raise capital from the public, most commonly during an Initial Public Offering (IPO) or Follow-on Public Offer (FPO). Instead of fixing a single issue price in advance, the price is discovered through bids received from investors.

Below is a detailed and structured explanation.

1. Meaning of Book Building Issue

A Book Building Issue is a price discovery mechanism where investors bid for shares within a specified price band, and the final issue price is determined based on demand at various price levels.

The term “book” refers to the order book, which records:

• Number of shares bid

• Price at which investors are willing to buy

  2. How Book Building Works (Step-by-Step)

  Step 1: Appointment of Intermediaries

  The company appoints:

  • Lead Managers / Book Running Lead Managers (BRLMs)

  • Underwriters, registrars, etc.

  Step 2: Filing of Prospectus

  A Draft Red Herring Prospectus (DRHP) is filed with the regulator (e.g., SEBI in India), containing:

  • Company details

  • Financials

  • Risk factors

  • Issue size (but not final price)

    Step 3: Price Band Announcement

    The company announces a price band, for example:

    • ₹100 – ₹120 per share
      (Maximum band width is usually limited by regulations)

    Step 4: Bidding by Investors

    • Investors bid during the issue period (typically 3–5 days)

    • Each bid includes:

      • Price within the band

      • Number of shares

    • Investors can revise or withdraw bids before closing

      Step 5: Book Building (Demand Collection)

      The BRLM builds the order book, showing demand at different prices.

      Example:

      Price (₹)	Shares Bid
      120	50 lakh
      115	80 lakh
      110	120 lakh
      105	200 lakh

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      Step 6: Price Discovery

      • The cut-off price is the price at which the issue gets fully subscribed

      • This price becomes the final issue price

        Step 7: Allocation of Shares

        Shares are allocated to:

        • Qualified Institutional Buyers (QIBs)

        • Non-Institutional Investors (NIIs / HNIs)

        • Retail Individual Investors (RIIs)

        Allocation is done as per regulatory reservation norms.

        Step 8: Listing on Stock Exchange

        After allotment, shares are listed on the stock exchange for trading.

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        3. Types of Investors in Book Building

        1. Qualified Institutional Buyers (QIBs)

           • Mutual funds, banks, FIIs

        2. Non-Institutional Investors (NIIs)

           • High Net-Worth Individuals (HNIs)

        3. Retail Individual Investors (RIIs)

           • Small investors (with investment limits)

             4. Cut-Off Price (Important Concept)

             • Retail investors can bid at “Cut-Off”

             • They agree to buy shares at whatever final price is decided

             • Cut-off option is not available to institutional investors

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             5. Advantages of Book Building Issue

             For the Company

             • Better price discovery

             • Reflects actual market demand

             • Reduces risk of underpricing or overpricing

             For Investors

             • Transparent process

             • Opportunity to bid at preferred prices

             • Fair allocation system

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             6. Disadvantages of Book Building Issue

             • Complex process compared to fixed price issue

             • Retail investors may not fully understand bidding

             • Final price uncertainty until allotment

               7. Book Building Issue vs Fixed Price Issue

               Basis	Book Building Issue	Fixed Price Issue
               Price	Discovered via bids	Fixed in advance
               Transparency	High	Lower
               Investor Choice	Price flexibility	No price choice
               Popularity	More common today	Less common

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               8. Example (Simple)

               Suppose:

               • Issue size: 1 crore shares

               • Price band: ₹100–₹120

               • Total demand crosses 1 crore shares at ₹115

               ➡️ Final issue price = ₹115

               9. Conclusion

               A Book Building Issue is a market-driven, transparent, and efficient way of issuing shares where the final price is determined by investor demand rather than being fixed beforehand. It is the most widely used IPO method globally.