The initial public offerings keep on attracting investors. Any new company entering the stock market uses IPO to raise the public finances. Hence, IPO is the very first offering by a company in the market. Investors can buy shares of the newly entering company through IPOs before the shares are available in the market.
Whether you are an investor or a company planning to go public, know the types of Initial Public Offerings are categorized into two types. Check the difference and significance of Book Building Issue and Fixed Price issue in depth.
List of 2 Types of IPO
#1 Fixed Price Issue
Fixed price issues are those IPOs where company fixes the certain price at which the shares will be sold to the investors. Even before the company goes public, the investors can know the price of its shares. However, the actual demand is clear only after the issue is closed. While applying for this type of IPO, an investor has to pay the share price.
#2 Book Building Issue
Under Book Building issue, 20% price band on shares is offered to the investors. The final price is not known unless the bidding is closed. The investor has to state the exact number of shares he wants to buy and how much he will pay. Though fixed price per share is not known, floor price and cap prices are there. The lowest share price is the floor price and the highest is the cap price. Depending upon the bids received from the investors, the company decides the final share price.
Fixed Price vs Book Building
Under fixed-price, investors know the final price of a share in advance. This allows investors to decide their investment in IPO with greater confidence. If the IPO is a book-building issue, investors known only 20% price band. Once the bidding is closed, the final price is available.
The demand for the securities under fixed price are known once the issue is closed. As for the book-building issue, the demand of securities is reflected on the official website of BSE. Investors can see the real-time based demand during the bidding process.
For the fixed price issues, investors need to pay the full amount in advance along with the IPO application. Under book building, all investors except QIBs have to pay full 100% amount in advance with the application. QIBs investors have to pay only 10% in advance.
Under fixed-price issue, 50% of the shares are kept for the applications amounting to Rs. 1 lakh. Balance 50% is for the applications with amount more than Rs. 1 lakh.
While under book building issue, the shares are reserved as per below distribution.
- 50% of shares offered are for QIBS
- 35% of shares are reserved for small investors
- Balance 15% are reserved for other remaining investors
BSE also offers an excellent book building platform for the investors applying for book building IPOs. This platform is a software on BSE network. Bids are placed on the real-time basis on the BSE network. This system is one of the largest of its kind in the world and is used across 350 cities in India.
If you are searching for Different Types of IPO in India then your search ends now!
Investors can learn more about book building in Chapter XI of the SEBI Guidelines 2000. Buzz9studio will continue to bring more interesting and useful information for the investors and businesses of India.