The Qualitative Factors Include: The prospects of the industry, track record of the promoters, the competitive advantage the company has in making best use of the business opportunities, and growth of the company as compared to the industry, etc.
The Quantitative Factors Include: The earnings per share, book value, the average market price for two or three years, dividend payment record, the profit margins, the composite industry price earnings ratio and future prospects of the company, etc.
Above all the lead manager and the company has to assess whether the market can absorb the premium on the issue. This will depend upon the stock market condition prevailing at the time of the issue. (See Annexure 6)
Earlier, such premium was fixed as per the guidelines of Controller of Capital Issues. Since the adoption of free pricing and the abolition of the office of Controller of Capital Issues there have been spate of Issues at premium.
BOOK BUILDING
Book building is a process used for marketing a public offer of equity shares of a company. Book building is called so because it refers to the collection of bids from investors, which is based on an indicative price range. The issue price is fixed after the bid closing date. The issuer company engages a lead merchant banker to act as a book runner, who prepares and obtains a green signal for the draft of offer document (without mentioning price) to SEBI. A syndicate, comprising of capital market intermediaries (eligible brokers, merchant bankers or even mutual funds) is
appointed to underwrite issue who approaches investors and collects bids from them. They collect demand for securities at different price levels and consolidate information which is passed on to syndicate. It in turn, passes it on to the book runner. The book runner builds an order book, that is, collects the bids from various investors which shows the demand for the shares of the company at various prices there after price of issue is fixed.
Share with your friends: |
