SME LISITING

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ISSUE
Issue Type Fixed Price Issues Book Building Issues
Offer Price
Price at which the securities are offered and would be allotted is known in advance to the investors
A 20% price band is offered by the issuer within which investors are allowed to bid and the final price is determined by the issuer only after closure of the bidding.
Pricing
The price at which securities will be allotted is intimated to investors in advance.
The price at which securities are allotted is not disclosed to investors in advance, and they only get to know the indicative price range.
Payment
Through UPI (Unified Payment Interface) mode up to Rs. 5 Lac, and above Rs. 5 Lac through (ASBA) Applications Supported by Blocked Amount
Through UPI (Unified Payment Interface) mode up to Rs. 5 Lac, and above Rs. 5 Lac through (ASBA) Applications Supported by Blocked Amount

Reservations

Minimum 50 % of the shares offered are reserved for applications below Rs. 2 lakh and the balance for higher amount applications.

Not less than 35% to Retail Individual Investors, not less than 15% to non-institutional investors; not more than 50% to QIBs.
FIXED PRICE ISSUE

The Fixed-Price IPO method is comparatively simple compared to the book-building method because there is no price discovery. Unlike Book Building method wherein a price band is given, in Fixed Price issue the issuer company in consultation with the Merchant Banker decides a price at which they want to issue shares to public.

The Issuer Company has an option to disclose the Issue price at the time of filing the Draft Offer document, however, the Offer document shall contain the price at which the shares are to be issued to public.

Book Built Issue

An issuer company desirous of getting listed on SME Exchange is allowed to freely price the issue. The basis of issue price is required to be disclosed in the offer document, whereby the issuer needs to disclose in detail about the qualitative and quantitative factors justifying the issue price. The Issuer can mention a price band of  20% (cap in the price band should not be more than 20% of the floor price) in the draft offer documents filed and actual price can be determined at a later date before filing of the final offer document with Exchange/ROCs/SEBI.

Price Discovery through Book Building Process

As defined in Regulation 2(1)(g) of SEBI ICDR Regulations, “Book Building” means a process undertaken to elicit demand and to assess the price for determination of the quantum or value or coupon of specified securities or Indian Depository Receipts, as the case may be, in accordance with the regulations. This method provides an opportunity to the market to discover the price for securities. The process is named so because it refers to the collection of bids from investors, which is based on a price range. The issue price is fixed after the closing date of the bid.

A company planning an IPO/FPO appoints a Merchant Banker as a book runner. A particular time frame is fixed as the bidding period. The book runner then builds an order book that collates bids from various investors. Potential investors are allowed to revise their bids at any time during the bidding period. At the end of bidding period the order book is closed and consequently the quantum of shares ordered and the respective prices offered are known. The determination of final price is based on demand at various prices.

Corporate may raise capital in the primary market by way of initial public offer, right issue, or private placement. An Initial Public Offer (IPO) or Follow on Public offers (FPO) to aid price and demand discovery. It is a mechanism where, during the period for which the book for the offer is open, the bids are collected from investors at various prices, which are within the price band specified by the issuer. The process is directed towards both the institutional as well as retail investors. The issue price is determined after the bid closure based on the demand generated in the process.

Price Band

The offer document may have a floor price at which or a price band within which the investors can bid. The spread between the floor and the cap of the price band cannot be more than 20%. In other words, it means that the cap should not be more than 120% of the floor price. The Company decides the price band in consultation with the Merchant Bankers, and typically after undertaking a pre-marketing exercise with leading QIBs.

The price band can have a revision. SEBI requires that any revision in the price band has to be widely disseminated by informing the stock exchanges, by issuing press release and also disclosing it in the relevant websites. When the price band is revised, the bidding period has to be extended for a further period of three days, subject to the total bidding period not exceeding ten working days.

Issue / Bidding Period

Any public issue is required to be kept open for at least three working days but not more than ten working days including the days for which the issue is kept open in case of revision in price band. In case the price band in a public issue made through the book building process is revised, the bidding (issue) period disclosed in the red herring prospectus shall be extended for a minimum period of three working days, provided that the total bidding period shall not exceed ten working days.

 

The Process

  • The issuer who is planning an offer nominates Lead Merchant Banker(s) as ‘Book Runners’.
  • The issuer specifies the number of securities to be issued and the price band for the bids.
  • The issuer also appoints syndicate members with whom orders are to be placed by the investors.
  • The syndicate members input the orders into an ‘electronic book’. This process is called ‘bidding’ and is similar to open auction.
  • The book normally remains open for a period of 3 days.
  • Bids have to be entered within the specified price band.
  • Bids can be revised by the bidder before the book closes.
  • On the close of the book building period, the book runners evaluate the bids on the basis of the demand at various price levels.
  • The book runners and the issuer decide the final price at which the securities shall be issued.
  • Generally, the number of shares is fixed, the issue size gets frozen based on the final price per share.
  • Allocation of securities is made to the successful bidders. The rest get refund orders.
Guidelines for Book Building Rules governing the Book Building Process are covered in Schedule XIII of the SEBI (ICDR) Regulations, 2018.

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