Book building process and securities subscription ahead of company’s IPO
TO raise capital from public investors, a private company can offer shares through an initial public offering (IPO). Determining an accurate price at which the IPO is to be offered is done through an exercise known as “book building”.
Book building is conducted by the issuer of the IPO with the direct participation of those wishing to invest in order to establish the price of one share.
Book Building
After obtaining principle approval and completing the procedures issued by the Securities and Exchange Regulator of Cambodia (SERC), the issuer, with the assistance of its underwriter, will determine the share price either through book building or other methods approved by the director-general of the SERC.
Book building is the process between issuer and investors, with the assistance of the underwriter, used to ascertain an accurate price for a stock. The main purpose of book building is to ensure a price that reflects the market demand.
After allocating for employees (should the issuer have an incentives policy to sell shares to its staff), the remaining 70 per cent of the total number of equity securities is used in book building, with 30 per cent reserved for subscription for investors who were unsuccessful and missed the book building process.
Investors willing to participate in the book building process must comply with certain conditions, such as by completing the application form issued by the SERC and depositing
at least 10 per cent of the price and amount they wish to purchase at.
During the book building process, investors can bid at any price within the price range stated in the disclosure document as well as the amount they wish to subscribe to. After the completion of this process, the issuer, with the assistance of the underwriter, will calculate the price of the equity securities by using the weighted-average method based on the price and the amount of equity securities filed by the investors in their application forms.
“Successful” investors in the book
building process refers to those who have placed a price equal to or higher than the offering price of the equity securities.
Finally, with the assistance of the underwriter, the issuer will notify successful and unsuccessful investors immediately after its disclosure documents have been approved and registered by the SERC. The issuer will then transfer money deposited during the book building process to the unsuccessful investors or keep it in case they wish to move on to the subscription process.
Subscription
After obtaining approval and registering the disclosure document, the issuer, with the assistance of the underwriter, can start the subscription process.
Subscription refers to the offering process for the purchasing of securities from the issuer. Both successful and unsuccessful investors in the book building process can apply for a subscription and deposit any additional money based on the size of their subscription. Those who missed participating in the book building process can also take part in the subscription process by making a deposit of at least 100 per cent of the total amount of equity securities to be subscribed to.
In the case of the subscription amount being in excess of the securities allocated for in the book building and/or for investors who were unsuccessful and missed taking part in the process, the issuer, with the assistance of the underwriter, will divide the equity securities to investors under pro rata rules.
In the event of the subscription amount being less than the number of securities allocated in the book building and/or for investors who were unsuccessful and missed participating in the book building, the issuer will divide the amount of equity securities filed by the investors as shown in their application form.
The underwriter shall purchase any remaining securities based on the amount agreed with the issuer.
After the completion of the subscription process, the issuer, with the assistance of the underwriter, will prepare a report on the subscription results and immediately submit it to the SERC to request a review and final decision.
After the completion of the book building and subscription processes, the issuer will have its equity securities registered and listed for trading on the Cambodia Securities Exchange (CSX) on the date requested.