KARACHI: Pakistan stock markets’ first ever offer for sale of shares via Book Building process was successfully concluded on Thursday by the book runner, AKD Securities Limited, a statement by the company said.

It stated that the book building for issuer Ghani Gases Limited stipulated confirmed bids for 8.6 million shares against an offer of 6.0 million shares with the floor price of the issue at Rs13.50 per share. The strike price determined through the process of Dutch Auction Method was calculated at Rs14.00 per share. The issue was oversubscribed by over 43pc.

The sponsors of Ghani Gases Limited have offered 10 million shares, with six million offered to institutional investors and high net worth individuals via the new book building process with the remaining four million shares offered to the general public via the usual offer-for-sale process at the KSE.

Explaining the process of book building mechanism, the statement pointed out that it was another mode of offering shares to investors. Although the method was common internationally and several GDR’s of Pakistani companies had been placed under this method in the past, the transaction under discussion was the first ever under the new book building regulations approved by the regulator in April 2008, through which listing is being achieved.

In a book building transaction, certain portion of the total offering is offered by the sponsor to institutional investors/high net-worth individuals. The financial advisor/arranger conducts road shows where the company sponsors provide detailed analysis of the company’s business model, strategy and outlook to the potential investors.

After that, investors are invited to place their bids at or above a reserved price during the bidding period. In the case of Ghani Gases Limited, the floor price was Rs13.50 per share. Potential investors have to bid for a minimum of Rs1.0 million worth of shares at the floor price or higher. The ‘book’ is maintained by the book runner.

The information on the website excludes names of the bidding investors to ensure confidentiality, but includes the number of shares applied for and the rates at which the bids are placed.

Investors can place various types of bids, including limit bid, step-up bid and bid at cut off price i.e. strike price.

Investors can revise or even withdraw bids until the bid book is open.

Once the bidding period ends, the ‘book’ is closed and the software driven final price is determined, the statement said and added that in this case the final prices stood at Rs14.00 per share. Investors bidding at or above the strike price would be offered shares at the strike price and the additional amount if any is refunded to them.

Book building method of offering shares to investors is considered to have several advantages over the traditional IPO or offer-of-sale method. The foremost being price discovery by the participants which is achieved through the demand and supply dynamics that goes into determining the strike price.

Secondly, the offerer / company sponsor gets a realistic value for his shares unlike in a traditional IPO/offer for sale where the price is fixated weeks before the offering and no demand and supply play is involved.

Third, it makes sense for the institutional investors and high net-worth individuals to participate in the listing process. In the traditional offering once the issue gets oversubscribed institutional investor often gets a very small fraction of his original bid while having his funds unnecessarily tied up for over three weeks.

Lastly, the secondary market investors who often churn the shares through multiple applications for making a quick buck are to a large extent eliminated under this process.