WHO IS BOOK LEAD RUNNER?

A Book Running Lead Manager, also known as a Book Lead Runner, is one of the most important threads in the Initial Public Offering process. It leads a company into becoming listed on the public list by supporting it in its transformation. The BRLM is essentially the primary coordinator and underwriter for the IPO, often being an investment bank or group of banks. The lead manager, a registered financial institution with SEBI, takes upon itself the responsibility of furnishing advice in respect of the general plan, quantum, and timing of the issue so that the IPO is in tune with the expectation of the investor and market conditions. This lead manager also helps the company in drafting the prospectus, statutory advertisements, offer documents, and other key documents required for compliance at the regulatory front. They also make sure that all regulations, including those issued by the SEBI, the Registrar of Companies, and other agencies, such as the several stock exchanges, are followed to the letter. The management group of an IPO may also select and designate a Registrar for the public offering, printers, an advertising agency, and bankers for the offer.

Apart from pre-IPO planning, a lead manager looks after other key post-issue activities, including handling the allotment to non-institutional investors, ensuring timely communication of allotment results to respective bidders, and coordination over the dispatch of refunds to the unsuccessful bidders. The lead manager would also be in charge of marketing strategies about the offering, coordinate road shows, and ensure smooth functioning of escrow accounts. The role of the lead manager is central: a well-executed IPO balances the interests of the issuing company with the interests of potential investors.

CRITERIA TO BECOME A SEBI REGISTERED MERCHANT BANKER:

  • Applicant shall be body corporate other than non-banking financial company
  • Applicant has necessary infrastructure like adequate office space, equipment’s and manpower to effectively discharge the activities
  • Applicant has employment minimum of two person who have experience to conduct the business of merchant banker
  • Applicant fulfill the capital adequacy as required by regulation
  • Person directly or indirectly connected with applicant has not been granted registration by the Board.
  • Applicant, his partner, director or principal officer has not involved in any litigation connected with securities market or has not at any time been convicted for any offence involving moral turpitude or has been found guilty of any economic offence
  • Applicant has professional qualification from an institution recognized by Government in finance, law or business management.
  • The bare minimum capital adequacy requirements shall be a net worth of not less than INR 5 Crore.

ROLE IN THE IPO

  • Structuring the IPO: The Book Lead Runner is responsible for helping the company structure the IPO, advising on the size of the offering, timing, and potential valuation. They conduct a detailed financial analysis and assess market conditions to maximize the chances of a successful IPO.
  • Building the Book: The lead runner is primarily accountable for building an order book, which represents a gathering of interest indications by institutional and retail investors. It allows for the assessment of demand for the shares and dictates the final price of the issue.
  • Pricing the Offer: The Book Lead Runner needs to play a vital role in setting up the offering price relying on the demand that is generated in the book-building process. Their approach should be consistent with both the interests of the issuing company and also those of the investors to ensure the successful launch of the security on the stock exchange.
  • IPO Marketing and Underwriting: Responsible for the management of the marketing of the IPO, which includes the organization of roadshows to present the company to its potential investors. This will pave the way for building an interest and confidence in the stock. Moreover, the book lead runner will be the major underwriter; they purchase some shares from the company and then sell them to investors. If demand is too low, the book lead runner may need to buy unsold shares, hence assuming financial risk.
  • Stabilization and Post-IPO Management: In the after-IPO, the Book Lead Runner is, in most cases important in stabilizing the stock price, usually through buying shares in the market to prevent the stock price from going down too fast.

EXAMPLES OF BOOK LEAD RUNNER:

  1. In the IPO of ‘Northern Arc Capital Limited” the role of the book running lead managers were filled by ICICI Securities, Axis Capital and Citi Global Markets India.
  2. In the IPO of ‘Bajaj Housing Finance’ the role of the book running lead managers were filled by Kotak Mahindra Capital Company Limited, Bofa Securities India Limited, Axis Capital Limited, Goldman Sachs (India) Securities Private Limited, SBI Capital Markets Limited, Jm Financial Limited and Iifl Securities Ltd.
  3. In the IPO of ‘Bazar style Retail Limited’ the role of the book running lead managers were filled by Axis Capital, Intensive Fiscal Services and Jm Financial Limited.

DIFFERENCE BETWEEN A BOOK RUNNER AND A LEAD MANAGER:

A Book Runner and a Lead Manager both play very critical roles in an IPO. The difference between the two lies in the nature of their responsibilities. The Book Runner deals with the order book or the demand created for the shares and finally fixes the price after studying the interest evinced by the investor. They also act as the underwriter, and hence accept the financial risk in case the shares go unsold. On the other hand, the Lead Manager would be responsible for all the details of the process of the IPO, including drafting the offer documents and coordinating the post-issue activities, such as share allotment and refund. Whereas the Book Runner took care of the pricing and demand, the Lead Manager was responsible for the overall logistics of the IPO.

CONCLUSION

The Book Lead Runner plays a very important role in making the IPO a success by bringing financial expertise while providing market insights towards pursuing strategic execution throughout the process. They ensure the issuing company and investors are very well treated during such a big financial event.

REFERENCES

Unknown's avatar

Published by DUCTUS EDGE-A KNOWLEDGE ATLIER

This blog is a medium adopted to exchange ideas and to draw attention to the modern laws, business laws, startup laws, miscellaneous legal and other issues and policies which have become omnipresent in our day to day life. We believes in, "An Idea can change your Life and echoes through your living."

Leave a Reply