It is an option book building process where by 100 percent of the securities is offered on a firm basis or is reserved for promoters, permanent employees of the issuer company. It may also be offered to shareholders either on a competitive basis or on a firm allotment basis. The required minimum issue of capital is Rs 25 crores.
Following are the procedures connected with the 100 percent book building process:
Conditions: It is possible for an issuer to make a public issue through the 100 percent book building process by fulfilling the following conditions:
1) The minimum capital to be raised must be Rs 25 crores
2) Reservation or firm allotment to promoters can be made only according to the guidelines of the SEBI i.e. to permanent employees of the issuer company, and in the case of new companies, to the permanent employees of the promoting company.
3) Allotment can also be made either on a competitive basis or on firm allotment basis to the shareholders of the promoting companies in the case of a new company, or to the shareholders of group companies in the case of existing companies.
4) Eligible merchant bankers shall be appointed as the lead book runners and their names shall be mentioned in the draft prospectus to be filed with the SEBI.
Lead book runner: An essential requirement for a 100 percent book building process is the appointment of a lead book runner by the issuer. The book runner is primarily responsible for book building in order to determine the appropriate price and quantum of issue. For this purpose, a syndicate is formed. SEBI registered underwriters and other eligible merchant bankers are appointed by the book runner as members of the syndicate. In the event of any under subscription of issue, the lead merchant bankers have to fill the shortfall. The book runners are responsible for incorporating any changes in the draft prospectus that might be suggested by SEBI.
In addition, they are also responsible for maintenance of records relating to the book building process, which may be inspected by SEBI to examine the modalities of book building adopted by the company.
Draft prospectus: The lead book runner files a draft prospectus with SEBI. This document contains all the required disclosures, such as the total size of the issue etc in accordance with SEBI norms. The information about the issue price and the quantum issue need not be mentioned. Any modifications are intimated to the company by SEBI within a period of 21 days after the receipt of the draft prospectus.
Essential disclosures: The following information should be disclosed in the draft prospectus before being filed with SEBI:
1) Details of the members of the syndicate formed by the lead book runner for the purpose of bidding for the issue.
2) Details of registrars and bankers to the issue.
3) Details of basis of ascertainment of issue price by the issuer and the book runner
4) Details of a accounting ratios, such as pre-issue EPS, P/E, an average return on net worth etc for three years including a comparison with industry average. The ratios have to be computed after computed after giving due effect to the consequent increase of capital on account of compulsory outstanding conversions
5) Details of NAV per share based on the last balance sheet.
Advertisement: The issuer, after obtaining the revised prospectus from SEBI, advertises in leading newspaper. The advertisement contains all the requisite features of the final offer document as specified under the provisions (Section 2A) of the Companies Act. IT is incumbent on the part of the issuing company to offer at least 10 percent of the total issue to the public.
Stock brokers: SEBI registered stock brokers are appointed for placing orders with the company by the stock exchange that would act as collection centers for the applications. These brokers must be capable of taking up the issue in the event of failure on the part of their clients to honor their commitment. The issuer pays commission for their services.