How Is The Share Priced Determined During An Ipo

How is the share priced determined during an ipo

How is the share priced determined during an ipo

Types of IPO Company Issues: 


Broadly defined, there are two types of IPO we see in the primary market (i) Fixed Price IPO Issue & (ii) Book Building IPO Issue.

An IPO can be made available by the company in either of the way or as a combination of both.

1> Fixed Price Issue:

In the fixed price IPO issue, the company along with their underwriters evaluates the total assets, liabilities, and every other financial aspect.

How is the share priced determined during an ipo

Then they study those figures to determine the IPO price (face value per share).

This IPO price is fixed from the first day of issue and is printed in the order document. It does not change with the demand of the IPO.

How is The IPO Price Determined?

The total demand for that IPO is known only after the issue is closed. Usually, it has been seen that in fixed price issue the oversubscription levels are quite high and sometimes touches several hundred times.

2>Book Building Issue:

In the book building issue method, the price is determined during the process of IPO.

How is the share priced determined during an ipo

There is no fixed share price; instead, the company provides a price band. The lowest price in the band is named as the ‘floor price’ and the highest price is named as the ‘cap price’.

The price band is printed on the order document. And the investors are free to bid for the desired quantity of shares with the price which they are willing to pay but within the price band.

How is the Stock Price Determined? - Stock Market for Beginners (Part 1) - Lumovest

The share price is then decided based on the bids. The securities are then offered at a price in-between the floor price and cap price.

How is the share priced determined during an ipo

The demand of that IPO is published every day as the book is built.

[Read More:How to Apply for IPO Stocks Online?]