Book Building method in IPO is widely used process to raise capital by companies. Book building is a strategic process employed by companies in Nepal to raise capital through the issuance of securities, predominantly stocks, to potential investors. This method, facilitated with the assistance of investment banks or underwriters, involves determining a price range for the securities and inviting investors to bid for shares within that specified range.
SEBON’s Book Building Bylaws 2077
Recently, the Securities Board of Nepal (SEBON) introduced comprehensive regulations under the Book Building Bylaws of 2077, aiming to streamline the issuance of ordinary shares. These regulations reserve 40% of shares for institutional investors and allocate 60% to general investors, promoting broader participation in Nepal’s capital markets.
Criteria for IPO through Book Building Method
To proceed with an IPO through book building, companies in Nepal must meet specific criteria:
- Approval from the company’s Annual General Meeting (AGM) to issue IPOs via book building.
- Operating profitably for the past three consecutive years.
- Ensuring per share net worth is at least 150% of the per share capital.
- Maintaining an average or above-average rating from recognized rating agencies.
Book Building IPO Process: Step-by-Step
- Company Decision: The company decides to issue shares through book building and prepares for the process.
- Appointment of Investment Banker: Engaging with an investment banker or underwriter to assist in managing the IPO process.
- Preliminary Prospectus Preparation: Drafting the preliminary prospectus outlining the details of the offering.
- Roadshow (Discussion Program): Conducting roadshows to generate interest among potential investors and showcase the company’s investment potential.
- Intent Price Collection: Gathering indicative prices or intentions to bid from interested institutional investors.
- Price Limit Determination: Setting a price range or limit based on investor feedback and market conditions.
- Filing with SEBON for Approval: Submitting the IPO proposal and documents to SEBON for regulatory approval.
- Collecting Bids from Qualified Institutional Investors: Inviting qualified institutional investors to submit their bids within the specified price range.
- Cut-off Price Determination: Finalizing the IPO price based on the bids received, often referred to as the cut-off price.
- Securities Issuance to the Public: Allotting securities to successful bidders and issuing shares to the public at 10% discounted rate of the cut-off price.
- Listing for Secondary Trading: Ensuring the shares are listed on the Nepal Stock Exchange (NEPSE) for secondary market trading.
Conclusion
Book building in Nepal’s capital markets represents a structured approach to IPOs, promoting transparency, and enhancing market efficiency. SEBON’s regulatory framework aims to foster investor confidence and stimulate economic growth through accessible capital market participation. Understanding the intricacies of book building empowers investors and companies alike to navigate the IPO process effectively, contributing to Nepal’s evolving financial ecosystem.
For more insights into book building and upcoming IPOs in Nepal, stay informed through reliable financial resources and consult with experts to make informed investment decisions.
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