Bookrunning: Not As Easy As Apple Pie

But then, is that really surprising? Stripped of its benefits, the only common factor between bookbuilding in India and the US is probably just the name itself. Its like trying to persuade the Indian public to try an all-American hot dog. But in this case, the frankfurter has been removed along with the fried onions, relish and mustard. All that's left is a stale bread roll which investment bankers insist on stuffing down the throats of investors and issuers alike, all the while murmuring gentle assurances that since this is an American product, it must be good and tasty.

Bookbuilding in the developed markets is used by investment bankers to gauge the demand of a stock and get a handle on what the highest market clearing price of the product will be. It also gives them an idea of how much demand can be generated at different prices and allows them to work out the potential demand from the various investor segments, which in turn allows them to adjust pricing and allocation decisions.

In India, because of regulatory compulsions, this is not possible as the price is fixed when the placement portion opens and the book running commences. Well, in reality that's not completely true. The lack of demand in the book running exercise has led to a revision of price but only in one direction: upward. Issuers, sensing a lack of demand have been forced to offer more incentives to procurers and higher yields to investors. IFCI and SCICI were classic cases were higher incentives pushed the yields of bonds with a 16 per cent coupon to beyond 19 per cent.

But even where there are no regulatory compulsions, the lead managers have done nothing to make the whole process more attractive. One of the most important activities for a bookrunner is that they provide liquidity support in the secondary market, be it GDRs, bonds, FRNs. In India, no such thing has been attempted. Ask any investment banker and he will narrate tales of despair