IPO through book building becomes a reality

The much-talked-about initial public offering (IPO) of companies through the book building mechanism has been completed. Mukti Nath Shrestha, spokesperson at the Securities Board of Nepal (Sebon), said, “This process, following extensive efforts from Sebon and other stakeholders, has achieved a significant breakthrough.” He described the development as “historic”.

Book building is the process by which an underwriter attempts to determine the price at which the IPO of a company is offered. An underwriter, usually an investment bank, builds a book by inviting institutional investors (such as fund managers and others) to submit bids for the number of shares and the price(s) they would be willing to pay for them.

Sarbottam Cement received permission to issue IPOs through book building at a cutoff price of Rs 401 per share on Oct 16. Previously, Sarbottam had set a maximum price of Rs 751.50 per share.

Sebon Chairperson Ramesh Hamal stated, “Book building serves as a means of price discovery, promoting equitable issuance of IPOs with extensive involvement from institutional investors and significant buyers.” He added that it also enables companies going public to secure considerable capital and collect pricing insights from prospective buyers. “Employing the book building approach for IPOs will improve the transparency, governance and accountability of share prices.”

According to Hamal, the commencement of the book building process will encourage many investors and companies, previously hesitant to issue an IPO, to consider doing so. “It will aid in enhancing national revenue contribution and contribute to the overall national economy.”