ISATION MECHANISMIN PUBLIC jc, aes ~=CISSuEs [[SREEN SHOE OPTION: A PRICE STABILI ‘The Concept ~ [As we know that in book-biltng metho, t fon demand received frm the prospective inv 7 tothe oor price On theater ara ed pe pun the price of ses i ed then the wcities se fered tthe nesioe, OF Tae, more and mre Pub sues are an boolchuilting route my india, However, incase ofa public offer of equity shares, which gS or booking method an important mee {an ssuer company either throtgh fixe price b hnamed as Green Shoe Option (GSO) can be adopted by such company for stabilising the po listing price of ite shares, subject to the guidelines prescribed by SEBI. Unexpected developy et tmav have an adverse impact on pric of newly ited securities. The facility of GSO intr SEBI facilitates the merchant banker as ‘stabilising agent’ (SA) to stabilise the poststng pg) the security: GSO is basically an over allotment option of public istes, which mitigate the shy term volatility and enhance the investors’ confidence. Indeed, GSO in the system of IPOs under book-building method was recognised by Sey » the first time in India through its new guidelines on 14 August 2003. Subsequently, the SEB] hx ‘modified the guidelines in order to upgrade the existing mechanism. The SEBI has prescribed te fresh guidelines for GSO of public offers of equity shares (POs as well as FPOs) under either under fixed price or book-bulding method om 28 May 2008 ‘According to SEBI (ICDR) Regulations, 2009, GSO means ‘an option of allotting equity shires ia excess of the equity shares offered in the public issue a a poststng price stabilising mechanism’. Though GS0 is used in most developed countries asa postisting price stabilising mechanism of publica of shares, application of GSO is sill very much a grey area in India, GSO as a price stabilisation mechanism in capital market is a burning issue of today as retail investors’ confidence in capil ‘market is gradually decreasing and this is the high time to meet the challenges with a view to impo the investors’ confidence in corporate finance and establish a healthy corporate ervironment. he final price of pubic is84e is determing tors and such final price must be aboye ed Genesis The origin of GSO canbe taced back tthe late Twentieth century (February, 1965) when Ge Shoe Manutactaring Company in USA (now calle Stride ite Conortion) se ts option first time across the globe. The name ‘green shoe’ is derived from the fact that over.allotment option technique was fist used inthe PO of securities ofthe Green Shoe Manufactarng OM @ scanned with OKEN Scannernationally, itis sometimes called an inderwriters to buyer ene cate of fae endian perspective, however, it na tent option which gives either the members of ll, addtional shares atthe original offer price. raising Pain diferent fashion. GSO is an option of choice on te additonal amis sen he at (her det share) trea evel initially envisaged. In India, SEBI (CR) ee ad make the allotment, beyond iy shares prescribe approprate pron oo Repulation, 2009 governing public issues of rs of 15 per Cent of total issue sina" *CePtNg oversubscriptions, which shall not be is adopte inancial services separately as a f ‘i aratly 89 SA monde ioexerdae he CSO rencement of trading of shares, Howevey the fo ee ing However, the following ae the imps > Under GSO, shares are allocated in exce included in the public issue with the in issued shares tant function of GSO of 88 of the shares (maxim 15 percent of public issues) tention of stabilising postlisting price of the newly > Acompany using either fixed price or book-building method fr issue of securities can now appoint an SA ho wil exercise the GSO by borrowing shares fom the promoters > One of the BRLMSs from amongst the issue management team of a particular issue of corporate securities can be appointed by theisuing company as’ stabilising agent, who will be responsible for the price stabilisation process, if required after listing of public issues. > In the event thatthe price ofthe shares goes below the issue price, the SA. will buy shares from the market so that the price rises. > In the event that the price of the shares rises then the $A will not buy but the issuing company will further supply shares tothe Sto repay the share loan to the promotes. Importance Inmos of the cases, itis experienced that public issue in Indi is turnout to be over-priced or under- pred after listing of them and ultimately the small investors become a net looser. If the public ‘sue is overpriced, it creates a favourable environment in the stock market. On the other side, if the prices in the open market (ue. post-isting price in the stock marke) fall below the issue price (Le listng price of public issues), small investors may start selling their securities to minimise losses due tother panic as well as fear and consequently price wil fall again. However, inthe period following the commencement of trading of shares, commonly referred to as ‘aftermarket, imbalances in supply and demand of shares can occur. Therefore, there is a vital need of a market stabiliser to smoothen the post-listing price of a newly listed share, ater public offers. In onder to smooth the Process, various mechanisms have been developed of which the most common mechanism is the ‘rerallotment option popularly known as ‘Green Shoe Option’ In this process, the ‘stabilising ‘ent sells mone shares than initially exist after borrowing shares from the promoters or preissue ‘hurholders by way of a securities lending agreement. Ifthe share price falls, the SA repurchases shares from the market, thus stabilising the price. These shares ae then token to repay the share to the promoters or pre-issue shareholders. © scanned with OKEN Scannericon) Regulations, 2018) yer the seBi crc of ay es. Pony cy srs Mapu Tati get tnd by pac ota Bre ware rate fF re pre posin n hc {0 stabilisation, This leaves the stabilising 8° the: sffer begins to trade in the aft ‘ir Hsin, whee : aftermayya8 the price des not go above the otf ation of GSO in India is portage vaectin P ne pie does est psn 18H eaiiedsecurtion eal, tes may pro issue of SP lance in Exhibit 8.1. Hwee am BSN 7 de GSO Operation in India (25 P “The main objective after listing, Stabilising nairyga publi urites in accordance wit ng pric oF ts PS the Proje re m cDR Re 2018 as follows (Ex! ‘i ithe SEB (CDR) Regulations Ho ne general meting he SBI CCD Re are sh proving the public sue, 0 alo SPES ies to the SA, if FeqUITE, oO the ep Of the stabilisation period: ISSUER COMPANY \ eps aang ager (SA) (Lend Merer | ‘ape tas rem ssve managertent 68] | romero proses Frama) (Manas an agreement wh ther es riser (riding more han SY S868) xerises graen | ean char led ne ahares wich shall ot Be ‘shoe option aistes, | |_imencoes ct 15% total tow eo SA shorfal and ‘Makes over alioiment[raxricn posting Purerases pico a estemtatdurng the || 15%eot tla ssue sze obs | | ing pice to eran peed (wren | | alloted to the investors athe post isting pice «listing piel tie of public sss] {G0 Bank account [money received agai the ever allotment] “GSO Demat account Ioan baton ta mtn ue hare alloted by tho ser company in case of ona and when potting pie > iting price) Balanoa amount fo be Wranstered io the vest protection and eduction fund estabished by SE amen is 1 ‘esue pric tobe rete to he ssuer company eee [(Total balance in GSO bank stowed te see company} starestron | _,,Pu“chaing of eauly shares frem the market oneal he sue comeany|| ‘pe markat || * Fiance tothe issuer company if any + expert incurred by the SA) = Balance Amo! ExhibitS.11 AModelof G50 Operation df @ scanned with OKEN Scanner> The BE appointed merchant baker o ook Tee inched gertananke or book rune, theese my be fom aoe sablhatg t epee bythe ue asan SA who shal be esponsbe >> Prior fling the drat offer document ai ert cage aga with he SEB the ur andthe SA have entered farged and expenses tobe incurred bythe Sk fas neg the CSO including fees 5 porto fling the offer document with the SE the ce hn aaneen rr to ing he fer dacument wth he SEB the Shas enterednto a agent ith ee older holding more than 5 per cent af specified securities oF wn bomen speci secures om hem percent of speci > The maximum number of specified securities thal ale ent ofthe mane oe, excess ofthe issue size shal not be in excess > The lead merchant banker ot lead book runner in consult mi We Gondecsiaamiaenocacintepicaes ‘The draft and final offer documents shall contain all material disclosures about the specified inthis regard in the regulations; alee eae > In case of an IPO predissue shareholders and ° jolders and promoters and in ease of an FPO preissue shareholders holding more than 5 per cent specified securities and promoters, may lend specified securities tothe extent ofthe proposed over allotment; >» The specified securities borrowed shall be in demateralised form and allocation of these securities shall be made prorata to all successful applicants; > For the purpose of stabilisation of postistng price of the specitied securities Gotermine the relevant aspects including the timing of buying such securities, fought and the price at which such securities are tobe bought from the market; > The stabilisation process shal be availabe fora period not exceeding 30 days from the date arwhich trading permission i given by the recognised stock exchanges in respect of the Specified securities allotted inthe publi issue = TheSA shall open a special acount, distin from the ise acount, with a bank for crediting the monies received from the applicants agains the overallotment; >» The A chall also open a special acount wih a depository pariipant for crediting specified re ea on ought fom the market during the stabilisation period out of the monies credited in the special bank account; The specified secures bought fom the market and rie in he special account Tre specified seca he promoters or pre-ssue shareholders immediatly, inany case not Inter than 2 working days after the end ofthe stabilisation periods >» Onenpry oft sabsation perio, the SA has not been able o by speed scare On expiry ofthe sabileent of such securities overated, the ssuer shall alot speed fom the make in dematerasd form othe extent ofthe short fo he spec Securities a sue it in 5 day ofthe lstre ofthe stabisaton period and such speckled decount with te DP, wit yo ehe promoters or presse shareholders bythe SA in He of Ferns aries booed fom them an he account wth he DP shal De closed thereafter; the SA shall ‘quantity t0 be © scanned with OKEN Scannerfication in respect of the rursner specitied secur sges where the specified securities allotted in > The issuer shall make a listing appl E : inthe Totted, to all the recognised stock exchany public issue are listed; > The SA shall remit the moni especial bank account foto rest in the special bank account after remittance of monies to the issuer an, Fat ee chy eo Th 1s with respect tothe specified securities alloted to the igs, > Any monies le Format of Report for Green Shoe Option “The report for GSO shall be filed by the Sn the following, format: > Name of the issuer ‘= Name ofthe SA (Registration No, as merchant banker with SEB) Issue size (No. of equity shares): Issue opened om: Issue closed on: ‘Overallotment in issue (per cent) Date of commencement of trading: Amount in the ‘Green Shoe Option Bank Account’ (in rupees) Details of promoter(s) from whom shares borrowed (Name and Number of shares borrowed) Date on which the stabilisation period ended: amber of shares bought during the stabilisation period: Date on which issuer allotted further shares to the extent of shortfall: | Date when the shares in the GSO Demat Account were returned to the promoters): | | Date when the money inthe GSO Bank Account was remited to the issuer Detail of the Depository account (Special account for GSO securities) where shares puchasd from the market were kept nteralia the following | > | > Account No | > Number of shares purchased, date wise | > Number of shares taken out, date wise | | | YY YY YY YY > Details of amount transferred to the Investor Protection and Education Fund established by th SEB: “Amount (in rupees) CCheque/Pay Order details Pha SA with Official Seal Date: — © scanned with OKEN Scanner‘owed from each of them; (i) the price, date and effected in the course of the stabilisation process; made by the issuer on expiry of the stabilisation Time in respect ofeach taneesttey {nd Gi) the details of silane process However apart fom these, sabi a sng agent cant give any assurance tothe company thatthe market price of equity shares willbe maintained ator above the afer price through suabiaton activities 50 in Price Stabilisation in markt saisation is the mechanism by which SA acts on behalf ofthe sue company, a nel sued security for the imitedpurpoeof preventing deciaiginte new secie market pice in order o faites ubtonfothe fe, can prevent te ple from huge price Muctatons and save investors fom potent los, ech estan stony recognise as an overallotnet opin for markt ata, So CSO con eel demand and supply imbalances and stabilise the price of the stock. Let us take a hypothetical to clarify such stabilisation mechanism, Caselet Company Lid, intends to make a public issue of 5,0,000 equity shares of 060 each at par (cut- ‘rice, payable fully on application as well as allotment (assuming cut-off price has been decided igh book: building process). The total numbers of applications for 10,00,000 shares are received from, t categories of investors, In this situation, the company may allot 3,75,000 shares (5,00,000 shares maximum 15 per cent of 5,00,000 equity shares) by adopting GSO as overallotment option, rather 1g the allotment to 5,00,000 shares. Here, 75,000 shares are to be borrowed by SA on behal ABC Company Ltd. from the promoters or preiste shareholders ofthe said company, If the poste share price fall, the SA repurchases 75,000 shares from the market, thus stabilising the price. natively, incase the SA does not buy shares from the market to the extent of shares over-alloted by he company due to increase in postlisting price or ary other reason, the issuer company further allots shares tothe extent ofthe shortfall. These shares shall be returned to the promoters (te. Lender) by the Sin eu ofthe shares boreowed from them. The above caselet can be elaborately presented ata glance by considering post listing price (i.e ‘utket price) of three different situations: () postlisting price of situation! 250; (i) postlisting ice of situation-l 270; and (ii) postisting price of stuationll 250 in Table 5. © scanned with OKEN ScannerTable5.1. Green Shoe Option Detalls SI.No. | Green Shoe Option Details Situation 1 Situation It Situation 111 #| 1 | Netofferto the public made by ABC Company [500,000 shares 5,00,000 shares [500,000 shares Ltd.( IPO size) 2 [Total number of application recived 50 00,000 shares | 10,00,000 shares | 10,00,000 shares 3 [1P0 price esting price) 360 pershare [860 pershare | €60 per share [Tota amount of PO size (=) %5,00,00,000 | 3,00,00,000 | €300,00,000 5 | Shares lent by promoters to Stabilizing Agent (at | 75,000 shares 17,000 shares 175,000 shares 170 size [15% 011 | Amount in GSO Bank Account om IPO pro- | 45,00,000 | &4,00,000 ¥5,00,000 |oirg=s) 7 | Market price tre: pos isting price) 350 pershare | 70pershare | S0per share ‘5 | shares credited to GSO Demat Account (bought | 50,000 shares [Ni 75,00 shares ‘rom the market) 9 | Amount used from GSO Bank account for market [25,0000] Na %3750,000 purchases (7 * 8) 10 __{ Balance amount in G5O Bank account (69) | €20,00,000 | 500 000 750,000 11] Nussber fnew shares alloted by Une Company to [25,000 shares 175,000 shares TN G50 Demat Account (5-8) 12 Number of shares returned to promoters from {75,000 shares | 7,000 shaves 75000 hares 50 Demat Account 13 [Amount remitted to Company on account of fresh | ®500,000 *45,00,000, Ni shares alloted a3) ‘M/s amount in GSO Bank account to be | @5000002 | NF ®750,000— transfered to Investor Protection and Education | Expenses of Slabi- Expenses of Stabe Fund established by the SEBI after deduction of lising Agent ising Agent expenses of Stabiising Agent [6 (0 13) “niscase, ABC Company Lt, wil eimbure all expenses to SA who incurred such expenses in xering GBO “ acm sccm © scanned with OKEN Scanner