Kathmandu, Book building system is a new practice for Nepal. Earlier, IPO was issued from premium but book building was not in vogue. Now this international practice is also starting here. Book building is the process by which a company issues an IPO by determining the price through competitive means.

 If a company wants to issue an IPO through book building method, it should request from the institutional investors approved by the regulatory body Nepal Securities Board the price they want to pay and the number of shares they want to buy. Provision has been made to take the price from at least 10 institutional investors while requesting such application.

For example, a list of the number of shares and the number of shares that a company wanted to pay to 10 institutional investors was received in secret. Now a base price is set for the IPO sale of the company based on the value received from those institutional investors.

 After fixing the base price, the final selling price limit is determined by 20 percent less and 20 percent more. The company also sells 40 percent of the total IPO shares to institutional investors. In case of price increase, the share is distributed according to the demand from the highest payer. At the price at which all the issued shares can be sold, there is a cut off price.

Institutional investors who set a price lower than the cut-off will no longer receive shares. Shares are distributed to institutional investors whose prices are above the cut-off. And the remaining 60 percent IPO is issued to the public with a 10 percent discount on the cut-off price. The public will now be able to apply for the IPO to be issued in this way.

In this method, the minimum amount to apply for IPO will be 50. If all the applicants have to distribute IPO at the rate of 50 lots, the distribution will be done at the rate of minimum 50 lots. If it is not enough to distribute in this way, there is a rule to distribute at least 50 lots by round robin.

But not all companies are allowed to issue IPOs through book building. According to the Securities Registration and Issuance Rules 2073, the company has to fulfill 4 different preconditions to issue shares in this way. For example, the company should have been earning net profit continuously for the last 3 years. The general meeting should have decided to issue securities through book building method.

Net worth per share must be at least 150 percent of paid-up capital and have a grade of at least average or above credit rating. Companies that do not meet these conditions are not allowed to issue shares through book building. Companies that fail to meet these conditions should issue an IPO at Rs 100 per share as they do now. And the minimum number of applications is 10 lots.