What does IPO price band mean?

A price band is a value-setting method in which a seller indicates an upper and lower limit of where buyers are able to bid. This pricing technique is often used with initial public offerings (IPOs). Determining the price band is critical to understanding how much investors are willing to pay.

Why is IPO price more than face value?

When shares are offered at more than the Face Value, then it is said that the issue is at a premium. The premium is the amount charged over the Face Value. Conversely, if shares are offered at a price lower than Face Value, then the issue is at a discount.

How is IPO price band calculated?

On the basis of bidding received from the investor issue price would be decided. And accordingly, the shares would be allocated to only those investors who bid equal and above the issue price. As in Zomato’s example Rs 72 is the lower band and Rs 76 is the upper band.

What is price band example?

For example, let’s say Company XYZ is going to go public. As part of the IPO process, Bank ABC (Company XYZ’s investment bank) sets a price band on its shares of $45 to $50 per share. This means that buyers must bid at least $45 a share for the first issue of the shares.

What is meaning of face value of share?

Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. The face value for bonds is often referred to as “par value” or simply “par.”

Why do IPOs set the price band near the face value?

There have been IPOs that have set the price band near the face value of the shares, which means the company sought minimal premium. The meaning of face value is clear, but what is the utility of the face value. After listing, the stock price of a company changes according to the market conditions and the performance of the company.

What is premium in IPO price band?

Lets take and example of Adani Power where the IPO price band was 90 to 100 Rs and the final price was 100 Rs. The face value of share is 10 Rs, and rest is 90 Rs which is called as Premium. So the simple formula to understand this concept is:

What is the face value of a share?

The face value, also known as the par value, is the nominal value of the shares. The face value is either Re 1, Rs 2, Rs 5 or even Rs 100. The issue price or the price band are the face value of the shares with an added premium that the company decides to ask from potential subscribers.

What is a price band in share market?

This price band consists of total price (face value + premium) To understand this term I will take one example to make this to you understand in a easy and proper way. Face value is basic price of a share that is generally 10 Rs per share. Except that face value can be 1 Rs, 2 Rs, 5 Rs, 100 Rs and rarely 1000 Rs.