Merchant Banking and Financial Services, III Semester (MBA), UNIT-2
Definition of Pricing of Public Issues
The Initial Public Offering Price is the price at which the stock is going to be offered to the public. The determination of initial public offering price depends on several things, like market condition, growth rate of the company, profitability etc.
Pricing
An issuer may determine the price of specified securities in
consultation with the lead merchant banker or through the book building
process.
An issuer may determine the coupon rate and conversion price of
convertible debt instruments in consultation with the lead merchant banker or
through the book building process.
The determination of pricing of issues through book building
process as follows:
Firstly, the company and its underwriters determine a price range
(price band) within which they are going to set their stock’s price.
Then the underwriter puts together a prospectus which comprises the
price range. That prospectus is submitted to the Securities and Exchange
Commission (SEC).
The next phase of pricing starts just before the day of offering.
In this phase the company and its underwriter fix the final price at which the
public can buy the issue
