BOOK BUILDING

A PROJECT ON

BOOK BUILDINGBOOK BUILDING

By

ABHISHEK AGGARWAL : 5029/09AKASH GUPTA : 5205/09

SUBMITTED FOR AWARD OF THE DEGREE OF

BACHELOR OF COMMERCE (HONOURS)

In

CORPORATE ACCOUNTING

KESHAV MAHAVIDYALAYA COLLEGE, PITAMPURA

DELHI

UNIVERSITY OF DELHI

FEBURARY, 2011

TABLE OF CONTENTS ACKNOWLEDGEMENT....................................................IACKNOWLEDGEMENT....................................................I

INTRODUCTION.................................................................1INTRODUCTION.................................................................1

PROCESS...............................................................................2PROCESS...............................................................................2

INITIAL PUBLIC OFFER (IPO) IN INITIAL PUBLIC OFFER (IPO) IN MOILMOIL........................5........................5

SAMPLE FORM...................................................................IISAMPLE FORM...................................................................II

CONCLUSION.......................................................................8CONCLUSION.......................................................................8

ACKNOWLEDGEMENT

The merciful guidance bestowed to us by the Almighty made us stick out this project

to a successful end. We humbly pray with folded hands and sincere hearts for his

grace to continue forever.

With hearts brimming with joy and minds struggling for words it is not easy to thank

someone who is the essence of our inspiration. We are most grateful to Mrs.

SHIKHA GARG for the support she gave to us. Her precious advices and

constructive criticisms improved the quality of the work. Needless to say, it was a

delight for us to work with and learn from her.

We are also thankful to all other Lecturers, specially, staff of Computer Science Dept.

and staff of library.

Submitting this project report, we pay our deep regards to our parents, whose

blessings made this task a success.

Finally, we take liberty, by breaking the unwritten rules of acknowledgements, to

thank each other for endless debates, which gave this dissertation not just the content,

but the spirit.

Name:

Abhishek Aggarwal : 5029/09Akash Gupta : 5205/09

Date: Friday, February 04, 2011

I

INTRODUCTION

SEBI guidelines, 1995 defines book building as “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.”

Dictionary defines book building as “a common practice used in most developed countries for marketing a public offer of equity shares of a company. It is a transparent and flexible price discovery method of initial public offerings (IPOs) in which price of securities is fixed by the issuer company along with the Book Running Lead Manager (BRLM) on the basis of feedback received from investors as well as market intermediaries during a certain period.”

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PROCESS

The issuer company proposing an IPO/FPO appoints a lead merchant banker as a Book Runner Lead Manager (BRLM).

Initially, the issuer company consults with the BRLM in drawing up a draft prospectus (i.e. offer document) which does not mention the price of the issues, but includes other details about the size of the issue, past history of the company, and a price band. The securities available to the public are separately identified as “net offer to the public”.

The draft prospectus is filed with SEBI which gives it a legal standing.

A definite period is fixed as the bid period and BRLM conducts awareness campaigns like advertisement, road shows etc.

The BRLM appoints a syndicate member, a SEBI registered intermediary to underwrite the issues to the extent of “net offer to the public”.

The BRLM is entitled to remuneration for conducting the Book Building process.

The copy of the draft prospectus may be circulated by the BRLM to the institutional investors as well as to the syndicate members.

The syndicate members create demand and ask each investor for the number of shares and the offer price.

The BRLM receives the feedback about the investor’s bids through syndicate members.

The prospective investors may revise their bids at any time during the bid period.

The BRLM on receipts of the feedback from the syndicate members about the bid price and the quantity of shares applied has to build up an order book showing the demand for the shares of the company at various prices. The syndicate members must also

maintain a record book for orders received from institutional investors for subscribing to the issue out of the placement portion.

PAGE 2 OF 8 On receipts of the above information, the BRLM and the issuer company determine

the issue price. This is known as the market-clearing price.

The BRLM then closes the book in consultation with the issuer company and determine the issue size of (a) placement portion and (b) public offer portion.

Once the final price is determined, the allocation of securities should be made by the BRLM based on prior commitment, investor’s quality, price aggression, earliness of bids etc. The bid of an institutional bidder, even if he has paid full amount may be rejected without being assigned any reason as the Book Building portion of institutional investors is left entirely at the discretion of the issuer company and the BRLM.

The Final prospectus is filed with the registrar of companies within 2 days of determination of issue price and receipts of acknowledgement card from SEBI.

Two different accounts for collection of application money, one for the private placement portion and the other for the public subscription should be opened by the issuer company.

The placement portion is closed a day before the opening of the public issue through fixed price method. The BRLM is required to have the application forms along with the application money from the institutional buyers and the underwriters to the private placement portion.

The allotment for the private placement portion shall be made on the 2nd day from the closure of the issue and the private placement portion is ready to be listed.

The allotment and listing of issues under the public portion (i.e. fixed price portion) must be as per the existing statutory requirements.

Finally, the SEBI has the right to inspect such records and books which are maintained by the BRLM and other intermediaries involved in the Book Building process.

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PROCESS AT A GLANCE

ABOUT THE COMPANY

MOIL is a Miniratna PSU which was originally set up in the year 1896 as Central Province Prospecting Syndicate which was later renamed as Central Provinces Manganese Ore Company Limited (CPMO), a British Company incorporated in the UK. In 1962, as a result of an agreement between the Government of India and CPMO, the assets of the latter were taken over by the Government and MOIL was formed with 51% capital held between the Govt. of India and the State Governments of Maharashtra and Madhya Pradesh and the balance 49% by CPMO. It was in 1977, the balance 49% shareholding was acquired from CPMO and MOIL became a 100% Government Company under the administrative control of the Ministry of Steel.

At present, MOIL operates 10 mines, six located in the Nagpur and Bhandara districts of Maharashtra and four in the Balaghat district of Madhya Pradesh. All these mines are about a century old. Except 3, rests of the mines are worked through underground method. The Balaghat Mine is the largest mine of the Company. The mine has now reached a mining depth of 309 meters from the surface. Dongri Buzurg Mine located in the Bhandara district of Maharashtra is an opencast mine that produces manganese dioxide ore used by dry battery industry. This ore in the form of manganous oxide is used as micro-nutrient for cattle feed and fertilizers. MOIL fulfills about 50% of the total requirement of dioxide ore in India. At present, the annual production is around 1,093,363 tonnes which is expected to grow in the coming years. MOIL has set up Ferro Manganese Plant (10,000 TPY) and Electrolytic Manganese Dioxide (EMD) Plant (1000 TPY) as per its diversification plan for value addition to manganese ore. MOIL has also set up a Captive Power Plant and is further considering, expanding the capacity of ferro manganese plant and setting up a new Silico Manganese Plant by means of joint ventures entered into with Rashtriya Ispat Nigam Limited and Steel Authority of India Limited.

PAGE 5 OF 8

DETAILS OF IPO THROUGH BOOK BUILDING

ON APPLICATION

PARTICULARS DETAILSDATE NOVEMBER 26, 2010 - DECEMBER 01, 2010TYPE 100% BOOK BUILT ISSUE IPOSIZE 33,600,000 EQUITY SHARESSIZE (In Rs.) RS. 1,237.51 CROREFACE VALUE RS. 10 PER EQUITY SHAREPRICE BAND RS. 340 TO RS. 375 PER EQUITY SHAREMARKET LOT 17 SHARESMINIMUM ORDER QUANTITY 17 SHARESLISTING AT NSE & BSE

AT ALLOTMENT

PARTICULARS DETAILSDATE OF ALLOTMENT DECEMBER 15, 2010APPLICATIONS RECEIVED 1,89,13,11,081 EQUITY SHARES (56.29 TIMES)SHARES ALLOTED 33,600,000 EQUITY SHARESISSUE PRICE Rs. 375 PER SHARE

ISSUE OF SHARES

QUALIFIED INSTITUTIONAL BUYERS (QIBS)

NON INSTITUTIONAL

INVESTORS

RETAIL INDIVIDUAL

INVESTORS (RIIS)

EMPLOYEE RESERVATI

ONS

TOTAL

16,464,000 4,939,200 11,524,800 672,000 33,600,000

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BOOK RUNNING LEAD MANAGERS

EDELWEISS CAPITAL LIMITED

IDBI CAPITAL MARKET SERVICES LIMITED

J.P. MORGAN INDIA PRIVATE LIMITED

REGISTRAR TO THE OFFER

KARVY COMPUTERSHARE PRIVATE LIMITED

SYNDICATE MEMBERS EDELWEISS SECURITIES LIMITED

SEBI Registration number: NSE: INB231193310 / BSE: INB011193332

BANKERS TO THE OFFER

BANK’S NAME SEBI REGISTRATION #HDFC BANK LIMITED INBI00000063

KOTAK MAHINDRA BANK LIMITED INBI00000927ICICI BANK LIMITED INB100000004

THE HONGKONG AND SHANGHAI BANKING CORPORATION

INBI00000027

STATE BANK OF INDIA INBI00000038IDBI BANK LIMITED INBI00000076

PUNJAB NATIONAL BANK INBI00000084PAGE 7 OF 8

CONCLUSION

Book Building process aims at fair pricing of the issue which is supposed to emerge

out of offers made by various investors. One question may arise whether book

building is the right mechanism for fair pricing discovery in IPOs? The answer may

be in the negative because a floor price is fixed for the Book Building below which no

bid can be accepted. Since investors participate through Book Building process in

making fair pricing of IPOs where there is no ceiling price, there should not be any

floor price. In addition to this, unlike international market, India has not reached the

stage of development of the institutional framework to experiment with the book

building process because retail investors (i.e. individual investors) are still now an

integral part of Indian capital market. If the interests of the small investors are not

safeguarded appropriately, this may be very dangerous to the primary capital market.

Although only two book built issues — Hughes software and HCL Technologies have

given proper returns to the shareholders in 1999and Maruti Udyog in 2003 but the

other four book built issues of Shree Rama Multitech,Cadila, Cinevista and Mascot

system were trading at huge discounts to their issue price ranging between 35-50%

BOOK BUILDING

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