A corporate may raise capital in the primary market by way of an initial public offer (IPO), rights issue or private placement. An IPO is the selling of securities to the public in the primary market. It is the largest source of funds with long or indefinite maturity for the company. Book Building is basically a process used in IPO for efficient price discovery. It is a systematic process of generating, capturing, and recording investor demand for shares.

So far Nepalese Capital market is concerned, IPO markets in Nepal have been historically dependent on retail investors/general public and the mechanism allowed and followed is fixed price offerings. Most of the Nepalese Companies have issued shares to public at face value, and very few have issued shares at a premium price after complying the requirements of Companies Law and Securities Board of Nepal (SEBON) regulations. Book Building is a very new concept for Nepalese Capital Market. SEBON has recently issued “Book Building Directives 2077” to implement and regulate the Book Building Process in Nepal

Book building is essentially a process used by companies raising capital through public offerings, both initial public offers (IPOs) or follow-on public offers (FPOs), 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 Qualified Institutional Investors (QIIs) at various prices, which are within the price band specified by the issuer. The issue price is determined after the bid closure based on the demand generated in the process.

As per the Book Building Directives 2077 issued by SEBON, the Book- Building Process will work as given below:

Once cut-off price is determined, shares shall be issued to all the QIIs whose bidding price is at or above the cut-off price and the issue price for all of them shall be the cut-off price. If the number of shares is not enough to issue shares to all the bidders bidding at cut-off price, then they shall be issued the remaining shares proportionately. No shares shall be issued to QIIs whose bidding price is lower than the cut-off price.

Those QIIs who have provided letter of intent during road show must participate in the bidding process if their intended price is within the upper and lower base price or is more than the upper base price. Such QIIs cannot bid for lower quantity or price than that intended in their letter of intent. However a single QII cannot bid for more than 20% of the shares issued.

Shares to general public shall be issued at a price which is arrived at by discounting the cut-off price by 10%. Application to the shares shall be made for minimum 50 shares by any one applicant.

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