Fixed Price Issue
A Fixed Price Issue is a method of pricing a public offering in which the issuer and the merchant banker determine a single fixed offer price before the subscription period opens, requiring investors to apply at that predetermined price rather than bidding within a price band.
Before the widespread adoption of the book-building mechanism, virtually all public issues in India were conducted as fixed price issues. In a fixed price issue, the company and its merchant banker arrive at the offer price through their own assessment of the company's valuation — using metrics such as earnings multiples, book value, and industry comparables — and publish this price in the prospectus. Investors then apply for shares at this fixed price during the subscription window with no flexibility to bid higher or lower.
The key distinction from book building is that price discovery occurs before the issue opens, not during it. In book building, the price band is advertised, institutional investors submit bids at various price points within the band, and the final price is determined empirically based on actual demand. In a fixed price issue, the price is already determined, and the market simply votes with its applications — either oversubscribing the issue (if the price is perceived as attractive) or undersubscribing it (if the price is too high).
Under SEBI's ICDR Regulations, a fixed price issue must be at a price not lower than the floor price calculated using the prescribed formula (for listed companies), ensuring the offer price is anchored to historical market prices. For unlisted companies, the issue price in a fixed price IPO must be justified in the offer document through a narrative comparison with listed peers and a clear articulation of the basis for the price.
The QIB component has specific rules in a fixed price issue. Unlike in book building, where QIBs indicate their demand during the bidding period, in a fixed price issue QIBs are also required to pay the full application amount upfront. This shifts the risk profile somewhat, as QIBs must commit capital before fully gauging the subscription interest of the broader market.
Fixed price issues have become less common for large mainboard IPOs in India, where book building is the dominant pricing mechanism. However, the fixed price route remains prevalent in the SME IPO segment, where the company is typically too small to conduct an extensive institutional roadshow and demand-gauging exercise. For retail investors in a fixed price issue, the primary consideration is whether the offer price represents fair value relative to the company's fundamentals and peer valuations, as there is no price adjustment mechanism available to the investor after the price is set.