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What is IPO and how book building process works?


Date: 29 Mar 2016   Posted By: Paresh Gujarati     Group: Finance & Banking    Category: Investments   

Recently e-commerce website Infibeam's IPO was completed recently. I do not know anything about IPO and how the first price of its share was set. I want to know what is the meaning of book building process? How the investors get the profit made from IPO? How one can apply for the IPO?

Are you keen to know what is IPO and how the book building process works? Ask our experts for the best and relevant answers.


Author: Timmappa Kamat    29 Mar 2016      Member Level: Platinum     Points : 8  (Rs 8)    Voting Score: 0

The IPO or the Initial Public Offer is a way of raising the funds for the company. IPO can be defined as selling off the company securities to the public. This is one of the widest mode of raising capital in the corporate world.

As per the definition by SEBI, Book Building is
"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"
.

The book building is done to arrive at the effective offer price for the company securities. The IPO is kept open for a particular period of time. Bids are collected from the investors at varied prices. The bids are invited on the basis of a pre selected floor price. At the end of IPO period, the offer price is arrived at by checking the bids.

The Initial Public Offer lets the company understand and arrive at the demand for it. The book building process continues for an year or so. Once the offer price is decided, the company gets itself listed and you will see its shares in the market in the regular mode.


Author: Mahesh    29 Mar 2016      Member Level: Diamond     Points : 5  (Rs 5)    Voting Score: 0

In layman terms - IPO is basically a funding generation process where they break their company seeding for the first time to public. For this reason it is called as Initial Public Offer. Depending on the market type, the IPO rules differ a lot. e.g. BSE and NSE both have different rules for IPO.

In book building phase, the IPO records the demand for the company shares. So on the basis of the demand and the variation in the investment prices the book building is performed.

Infibeam being an E-commerce retailer, you can see that they need funding in order to extend their services. So IPO is definitely their priority for generating funds. For next year or two, the book building phase will be done. And from there you'll find their shares on regular market under specific code and alias.





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