Kathmandu. The book building method in initial public offering (IPO) has been implemented by the regulatory body Nepal Securities Board since the beginning of the current fiscal year. The Board has implemented the Book Building Directive, 2077 for the implementation of this method as per the provision of IPO issuance from the book building method in the Securities Registration and Issuance Rules.

The Board also expects that this method will determine the issue price of the securities at the time of initial issuance of securities and will make the pricing process transparent and competitive.

Adopting the book-building process in a public issue means selling shares at a premium price. In this method, the board has made an arrangement for the general investors to get a minimum of 50 shares of the company issuing the IPO.

There is a provision to issue 10 percent discount on the cut-off price to the general investors while issuing shares through this method. Prior to the implementation of this method, the Board had also prepared guidelines in this regard. As per the provisions in the guideline, the company selling IPO through book building method should prepare a preliminary statement in consultation with the sales manager stating the estimated value of the securities and the basis of valuation.

A company issuing an IPO through the book building method should determine the base price by studying the intent value obtained from a qualified institutional investor and fixing the price limit so that the price maintained by adding 20 percent to the base price will be the upper limit and the price maintained by reducing 20 percent will be the lower limit.

Eligible institutional investors will have to issue securities through bidding after the approval of the statement with the price limit of the securities prepared for issuance of eligible institutional investors by registering the securities with the board. No eligible institutional investor will be allowed to bid for more than 20 percent of the issued securities. One hundred percent of the amount pledged in the bidding should be deposited in the specified withdrawal bank account or withheld in the applicant's bank account or a good for payment check should be submitted.

The Nepal Stock Exchange (NEPSE) will have to operate an automatic electronic bidding system for the book building method. Unless Nepse operates an automated electronic bidding system, the organization will be able to apply for securities through sealed bidding. The company will have to distribute the securities as per the demand to all the applicants who have pledged at that price or above by determining the cut-off price to be maintained when the securities issued by the company to the eligible institutional investors are fully sold.

Investors applying for the cut-off price will have to distribute the securities proportionately if they are not able to do so as per the demand. There is a provision that the amount not received during the distribution should be returned within three working days of the distribution along with the interest earned or the account should be closed.

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