Green Shoe Option
A company making an initial·public offer of equity shares through the book-building mechanism can avail of the shoe option (GSO) for subliming the post listing price of its shares. The GSO means an option of allocating shares in excess of the shares included in the public issue and operating a post listing price stabilizing mechanism through a stabilizing agent (SA). The concerned issuing company should seek authorization for the possibility of allotment of further issues to the SA at the end of the stabilization period (discussed subsequently) together with the authorization for the public issue in the general meeting of its shareholders, he should appoint one of the lead hook runners as the SA who would be responsible for the price stabilization process. The SA should enter into an agreement with the issuer company, prior to the filing of the offer document with the SEBI clearly terms/conditions including fees charged/ expenses to he incurred by him for this purpose, lie should enter into an agreement with the issuer company, prior to the filing of the offer document with the clearly stating all the terms/conditions flaunting GSO including fees charged expenses to be incurred by him for this purpose. He should also enter into an agreement with the promote who would lend their shares, specifying the maximum number of shares that may he borrowed from the promoters, but in no case exceeding 15 per cent of the total issue size. The details of these two agreements should be disclosed in the draft red herring prospectus, red herring prospectus and the final prospectus. They should also be included as material documents for public inspection in terms of he disclosures in the contents of the offer documents (discussed earlier). The lead hook runner, in consultation with the SA, would determine the amount of shares to be over-allotted with the public issue within the ceiling specified above (i.e, 15 per cent of the issue size). Over-allotment refers to an allocation of shares in excess of the size of the public, issue made by the SA out of shares borrowed from promoters in pursuance of a GSO exercised by the issuing company.
The draft red herring/red herring prospectus/final prospectus should contain the following, additional disclosures.
• Name of the SA,
• Maximum number of shares as well as the percentage of the proposed issue size,
• Period for which the company proposes to avail of the stabilization mechanism,
• Maximum amount of funds to be received by the company in case of further allotment and the use of these additional funds in the final document to be filed with the ROCs.
• Details of the agreement/arrangement between the SA and the promoters to borrow shares including, inter alia, (i) name of promoters, (ii) their existing shareholding, (iii) number and percentage of shares to be lent by them (iv) rights/obligations of each parry and so on.
• The final prospectus should additionally disclose the exact number of shares to be allotted pursuant to the public issue, stating separately the number of shares to be borrowed the promoters and over-allotted by the SA and their percentage in relation to the total issue size.
The SA should borrow shares from the promoters to the extent of the proposed over-allotment. They should be in dematerialised form only and their allocation should be pro data to all the applicants.
To stabilize the post-listing prices of the shares, the SA would determine the timing of buying them, the quantity to be bought, the prices at which bought on. In Case the SA does not buy shares to the extent of their over-allotment from the market, the issuer company should allot shares to the extent of the shortfall in dematerialised form to the GSO denature account within 5 days of the closure of the stabilization period. These would be returned to the promoters by the SA in lieu of those borrowed from them and the GSO demarcate account would be closed. The company would be making a final listing application in respect of such shares to all the concerned stock exchanges where the shares allotted in the public issue are listed. The provisions relating to preferential issues (discussed later) would not be applicable to such allotment. The shares returned to the promoters in either case would be subject to the remaining lock-in period.
The SA should maintain for at least 3 years from the date of the end of the stabilizing period a register in respect of each issue with GSO in which he acts as a SA containing the following details: (i) price date and rime of each transactions, (ii) promoters and tile number of shares borrowed from each and (iii) allotments made.