Nirma Ltd is looking at a band of Rs 325 to Rs 375 for its public issue book-building and will be offering 85 per cent of the offering to institutional investors and the balance to the retail market.
The company, which had filed the draft prospectus with the Securities and Exchange Board of India, did not indicate the price band for the book-building issue.
The price at which the issue will be sold is determined by the price at which investors bid. Merchant bankers making presentations to institutional investors have given an indicative band of Rs 325 to Rs 375.
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Sources point out that the band is prompted by the fact that price of Nirma is around Rs 400 on Bombay Stock Exchange (BSE). The six-month high was Rs 425 and the low was Rs 290. Nirma now has ambitious plans to enter the premium soaps segment to challenge the might of Hindustan Lever.
The merchant bankers to the issue were looking at two routes under book building -- the discounting method and the price band.
It has opted for the latter. Under the discounting method, investors quote a price at a discount to the market price. However, once the price is put within a band the bids stay within the band.
Under the book-building route different investors bid and there is price discovery. In the case of Nirma one crore share are being issued.
After the bids if the company is able to sell at all its shares at the higher end of the band it will freeze the price.
However, if most of the bids are at the lower end, the company had to decide if it wants to lower the price or forgo the issue. Merchant bankers are awaiting Sebi guidelines to get a clarification on the issue whether they issue size itself can be reduced. Nirma is offering one crore equity shares for sale and is expected to raise around Rs 350 crore from the issue. The Rs 909 crore Nirma has an equity of Rs 33.88 crore divided into 3.3 crore shares.
It is pointed out that offer will be through merchant bankers who will build the book depending on the bids received. The raised capital will be used to part fund the Rs 1,500 crore soda ash and linear alkaline benzene projects. This is a backward integration by Nirma.