With many companies gearing up for an initial public offering (IPO), one will encounter terms such as ASBA, book building, anchor investors and the like in the coming days. Here we cover five such terms from the IPO lexicon.
Book building/ fixed price issue: As the name suggests, in a fixed price IPO, the price at which shares are issued to investors is fixed upfront. In a book building issue, which is what is common these days, the company going public announces a price band – the purpose being price discovery through bidding rather than a fixed price. Under this, investors submit bids for the number of shares they would like to buy and at what price (from within the price band). After the bidding is complete, the highest price bid at which the cumulative demand for shares matches the total shares on offer becomes the cut off price. Share allotment happens at this price. All applicants who put price bids equal to or greater than this price become eligible for allotment. According to Aditya Kondawar, partner and vice president of Key Accounts at Complete Circle Capital, only retail investors, employees and existing shareholders have the option of ticking ‘cut off price’ and also placing specific price bids. Selecting ‘cut off price’ ensures that these investors remain eligible for allotment irrespective of the cut off price that is finally arrived at. Other categories of investors have to place price bids and cannot simply select ‘cut off price’.