2. Greenshoe Option/over-allotment
option/price stability Mechanism
• A greenshoe option is an over-allotment option in the context of an IPO.
• A greenshoe option was first used by the Green Shoe Manufacturing
Company (now part of Wolverine World Wide, Inc.)
• Greenshoe options typically allow underwriters to sell up to 15% more
shares than the original issue amount.
• Greenshoe options provide price stability and liquidity.
• A greenshoe option is an over-allotment option. In the context of an initial
public offering (IPO), it is a provision in an underwriting agreement that
grants the underwriter the right to sell investors more shares than initially
planned by the issuer if the demand for a security issue proves higher
than expected.
3. HOW
IT
WORKS
Permission in General Meeting
Include in RHP/Final prospectus
15% of the issue size
With in 30 days
Borrow from Promoters
Open GSO Bank Account
Open GSO DEMAT Account
4. GSO MECHANISM
‘A’ Company comes up with a issue of 1L shares shares
@ 100 per share
An additional 15K shares shall also be floated additionally
if the company resorts for GSO
Total amount collected will be ₹1 Cr to be credited to
Issue account and additional ₹15L to GSO Bank account
Once the listing is done, There are three possibilities:
5. 1. If price reduces to ₹85
SA tries to stabilize the price by creating Artificial demand
Through the process of buying
If 2000 shares are bought @ 85 = ₹170000
Additional 6000 shares @ 90 = ₹ 540000
Fruther 7000 shares @ 98 = ₹ 686000
Total money spent = ₹ 1396000
Initial amount deposited to GSO Bank a/c during issue is ₹1500000.
Now spent on buying is ₹1396000
Difference(₹104000) to be transferred to IPF of SE where the co. is listed
The shares bought back shall be credited to GSO Demat account and returned to
promoters in 2 days of close of stabilization period
6. 2. If Price is ₹100
No need to create artificial demand
The company shall allot additional 15K shares to SA
In turn it would be returned to Promoters
And Money collected during issue transferred to company
7. 3. If price is 90
SA would create artificial demand and
Buy 10000 shares, by then if the price is back to its original
Or in the Stabilization period if SA is unable to increase price
and
Is not buying the entire additional issue(15K shares)
Or if there are no sellers
In any case the issuer company shall allot shares to the
extent of shortfall in the dematerialised form to the GSO
Demat account with in 5 days of the closure of stabilisation
period.