The bookbuilding process is a mechanism used by investment banks to determine the demand for shares in an initial public offering (IPO) and set an appropriate price range for the shares. It involves collecting and compiling orders from institutional investors, including mutual funds, pension funds, and hedge funds, as well as high-net-worth individuals.

During the bookbuilding process, the investment bank, acting as the underwriter, will work with the company going public to prepare a prospectus and marketing materials, which describe the company’s business, financial performance, and future prospects. The underwriter will also set a preliminary price range for the shares based on an analysis of comparable companies and other market factors.

The underwriter will then reach out to potential investors, typically through a roadshow, to solicit indications of interest (IOIs) in the shares. Investors can indicate the number of shares they are interested in purchasing and the price they are willing to pay. The underwriter will compile all the IOIs and use them to gauge the demand for the shares and set the final offer price.

The final offer price is usually set at the top end of the price range, based on the level of demand indicated by the IOIs. The underwriter will allocate shares to investors based on various criteria, such as the size of the order, the investor’s reputation, and the investor’s relationship with the underwriter. The underwriter may also allocate shares to strategic investors or other groups as part of the IPO process.

Overall, the bookbuilding process is designed to strike a balance between the interests of the issuing company, which wants to raise as much capital as possible, and the interests of investors, who want to buy shares at a fair price. By collecting and analyzing IOIs from investors, the underwriter can determine the appropriate price for the shares and allocate them in a way that maximizes value for all parties involved.