GREEN SHOE OPTION
The brief lecture on Green Shoe option was given by our finance faculty Prof. Tapas Sir are as follows:
- In case an issuer company is making an initial public offer of equity shares through the book building mechanism, the company can avail of the Green Shoe option (GSO) for stabilizing the post listing price of its shares
- A company desirous of availing the option granted by this Chapter, shall in the resolution of the general meeting authorizing the public issue, seek authorization also for the possibility of allotment of further shares to the ‘stabilizing agent’ (SA) at the end of the stabilization period.
- The company shall appoint one of the Lead book runners, amongst the issue management team, as the “stabilizing agent” (SA), who will be responsible for the price stabilization process, if required.
- The SA shall also enter into an agreement with the promoter(s) who will lend their shares, specifying the maximum number of shares that may be borrowed from the promoters, which shall not be in excess of 15% of the total issue size.
- The details of the agreements shall be disclosed in the Red Herring prospectus and the final prospectus.
- The Lead Book Runner, in consultation with the SA, shall determine the amount of shares to be over allotted with the public issue.
- The stabilization mechanism shall be available for the period disclosed by the company in the prospectus, which shall not exceed 30 days from the date when trading permission was given by the exchange(s).
- The SA shall borrow shares from the promoters of the company to the extent of the proposed over-allotment. These shares shall be in dematerialized form only.
- The money received from the applicants against the over allotment in the green shoe option shall be kept in the GSO Bank Account, distinct from the issue account and shall be used for the purpose of buying shares from the market, during the stabilization period.
- The prime responsibility of the SA shall be to stabilize post listing price of the shares. To this end, the SA shall determine the timing of buying the shares, the quantity to be bought, the price at which the shares are to be bought etc.
- On expiry of the stabilization period, in case the SA does not buy shares to the extent of shares over-allotted by the company from the market, the issuer company shall allot shares to the extent of the shortfall in dematerialized form to the GSO Demat Account, within five days of the closure of the stabilization period. These shares shall be returned to the promoters by the SA in lieu of the shares borrowed from them.
