what is mean by Book Building Process.?

Question

it is related with the shares, when the intial public offering is being made.

Answer 1

The book building process is during an offering, including Initial Public Offerings, but also secondary offerings.

The "book" is the registry where the Book Runner (usually the lead investment bank on the deal) records who wants shares. When the offering period is over, whoever signs up for shares will get allotted shares according to their interest. The book build is a process since the supply almost never equals the demand.

If supply exceeds demand, then the offering size is either lowered or the underwriters of the deal purchase the shares to support the deal (or otherwise cancelled).

If demand exceeds supply, then the Book Runners updates the subscribers what the demand is to see if they want to change their orders. For example, if a deal is 2x subscribed (2 shares demanded for every 1 share of supply), then the subscribers will want to at least double their orders in order to get the original one share that they wanted. Since the number of shares subscribed has now grown large, the oversubscription becomes larger and larger. The book building becomes an iterative process - asking and adjusting share bid. For example, since you and everyone else doubled their share bid, the oversubscription has moved to three times, but you know it will go higher so you bid four times as much as you need. However, bidders need to put money down for all the shares that they requested. For example, you bid 400 shares at $1 for a 4x oversubscribed IPO. You put down $400 to get your $100 of shares, which you get later with the refund on your deposit.