Green Shoe Option

A Green Shoe option means an option of allocating shares in excess of the shares included in the public issue and operating a post-listing price stabilizing mechanism for a period not exceeding 30 days through a Stabilising Agent.

This is an arrangement wherein the issue would be over allotted to the extent of a maximum of 15 per cent of the issue size.

From an investor's perspective, an issue with green-shoe option provides more probability of getting shares and also that post-listing price may show relatively more stability as compared to market

A greenshoe option can provide additional price stability to a security issue, since the underwriter has the ability to increase supply and smooth out price fluctuations if demand surges too high.

Historically, the term green shoe (also written greenshoe) comes from the American company Green Shoe Corporation, which first introduced this technique at the time of its flotation. The existence and potential exercise of a green shoe must be expressly mentioned in the prospectus, in order to guarantee investors transparency regarding the offer mechanism.

The issuing company should seek authorisation for the possibility of furter issues to SA It should appoint one of the lead manger as SA The SA should enter into an agreement with the issuer company clearly stating the terms and conditions and fees to be charged for GSO He will also enter into an agreement with the promoters who would lend their shares

The details of these two agreements must be disclosed in the Red herring prospectus and final prospectus The lead book runner, in consultation with SA will determine the number of extra shares to be allotted

The SA should borrow shares from the promoters They should be in dematerialised form Allocation should be on a proportionate basis The stabilisation mechanism will be available for the period disclosed by the company subject to a maximum limit of 30 days from the date of listing

The SA will open a GSO Bank A/C and a GSO Demat A/C The money received will be deposited in the GSO Bank A/C The SA will determine the timing of buying the shares, price, quantity The shares so bought will be credited to the GSO Demat A/C and money will be paid through the GSO Bank A/C

The shares should be returned to the promoters within two working days from the closure of stabilisation period If the SA fails to buy the shares from the market, the issuer company would allot shares to the extent of the shortfall within 5 days of the closure of the stabilisation period These shares would be returned to the promoters

The GSO Demat A/C will be closed The company will be making a final listing of these additional shares The balance of GSO Bank A/C, if any, will be transferred to Investors Protection Fund of the concerned Stock Exchange The GSO Bank A/C will be closed

ICICI Bank

The greenshoe option of Rs 450 crore in ICICI Bank's public issue, was used to stabilise its share price Given the issue's size, price volatility was expected in the market The bank had appointed DSP Merrill Lynch Ltd as the stabilising agent to buy its shares whenever price fell below the issue level.

Under the greenshoe option, LIC, which held 7.8 per cent stake in the bank (before the public issue), loaned shares worth Rs 450 crore to DSP Merril Lynch. These shares were issued to subscribers along with the fresh issue of Rs 3,050 crore. Of the money, thus, collected by lead managers, Rs 450 crore were kept in an escrow account. This amount were used by DSP Merrill Lynch to buy shares in the secondary market. The secondary market intervention continued for a period of one month after listing or whenever the amount of Rs 450 crore was exhausted

BOOK BUILDING

BOOK BUILDING REFERS TO A PROCESS BY WHICH DEMAND FOR THE SECURITIES PROPOSED TO BE ISSUED BY A BODY CORPORATE IS ELICITED AND BUILT UP AND THE PRICE FOR SUCH SECURITIES IS ASSESSED FOR THE DETERMINATION OF THE QUANTUM OF SUCH SECURITIES TO BE ISSUED BY MEANS OF NOTICE/CIRCULAR/ADVERTISEMENT/DOCU MENT OR INFORMATION MEMORANDA OR OFFER DOCUMENT.

NEW PRICE DISCOVERY TECHNIQUE

IN CASE OF A FIXED PRICE METHOD, THE ISSUE PRICE IS DETERMINED BY THE ISSUER AND THE LEAD MANAGER IN A BOOK BUILDING METHOD THE ISSUER DETERMINES A FLOOR PRICE OR PRICE BAND

NEW PRICE DISCOVERY TECHNIQUE

THE ISSUER INVITES BIDS FROM THE PROSPECTIVE INVESTORS BASED ON THE INHERENT DEMAND FROM THE INVESTORS, THE ISSUER AND THE LEAD MANAGER DETERMINES THE ISUUE PRICE, (CUTOFF PRICE) NUMBER OF SECURITIES TO BE OFFERED ETC.

INVESTORS DETERMINE THE ISSUE PRICE

IT ALLOWS INVESTORS TO DETERMINE THE ISSUE PRICE THE ISSUE IS PRICED ON THE BASIS OF A REALISTIC ASSESSMENT OF THE DEMAND FOR SECURITIES AND HENCE THE MOST FAIR PRICE IS DETERMINED

PUBLIC ISSUE OF 10000000 EQUITY SHARES OF Rs.10 EACH AT A PRICE BAND OF Rs.50 TO Rs.60.
BID PRICE
50 51 52 53 54 55 56 57 58 59 60 TOTAL

NO. OF SHARES
500000 400000 700000 2000000 4000000 5000000 6000000 4000000 3000000 5000000 3500000 34100000

CUMULATIVE TOTAL
34100000 33600000 33200000 32500000 30500000 26500000 21500000 15500000 11500000 8500000 3500000

SPL INDUSTRIES LTD. PUBLIC ISSUE OF 9000000 EQUITY SHARES OF Rs.10 EACH AT A PRICE BAND OF Rs.60 TO Rs.70

BID PRICE
60 61 62 63 64 65 66 67 68 69 70 & CUT OFF TOTAL

NO. OF SHARES
274700 331300 15800 65200 900 702400 107000 6100 42200 1500 261493100 263040200

CUMULATIVE TOTAL
263040200 262765500 262434200 262418400 262353200 262352300 261649900 261542900 261536800 261494600 261493100

ALLOTMENT

UPTO 50% OF THE ISSUE IS TO BE ALLOCATED TO QUALIFIED INSTITUTIONAL BUYERS ON A PROPORTIONATE BASIS OUT OF WHICH 5% IS TO BE ALLOCATED ON A PROPORTIONATE BASIS TO MUTUAL FUNDS

ALLOTMENT

NOT LESS THAN 15% OF THE ISSUE IS TO BE AVAILABLE FOR ALLOCATION ON PROPORTIONATE BASIS TO NON INSTITUTIONAL BIDDERS/HIGH NETWORTH INDIVIDUAL NOT LESS THAN 35% OF THE ISSUE IS TO BE MADE AVAILABLE FOR ALLOCATION ON PROPORTIONATE BASIS TO RETAIL INVESTORS

STEPS IN BOOK BUILDING

THE ISSUER COMPANY APPOINTS A LEAD MERCHANT BANKER AS BOOK RUNNER LEAD MANAGER (BRLM) THE LEAD MANAGER AND THE ISSUER COMPANY PREPARES A DRAFT PROSPECTUS AND SUBMITS IT TO SEBI

STEPS IN BOOK BUILDING

THE BRLM APPOINTS SYNDICATE MEMBERS FOR UNDERWRITING THE ISSUE BID PERIOD IS FIXED AND THE BRLM STARTS MARKETING THE ISSUE BY CIRCULATING THE COPY OF DRAFT PROSPECTUS AMONG THE SYNDICATE MEMBERS AND QIBs

STEPS IN BOOK BUILDING

THE SYNDICATE MEMBERS CREATE DEMAND AND ASK FOR BIDS FROM EACH INVESTOR THE SYNDICATE MEMBERS AGGREGATE AND FORWARD ALL OFFERS TO THE BRLM THE PROSPECTIVE INVESTOR CAN REVISE THEIR BID DURING THE BIDDING PERIOD

STEPS IN BOOK BUILDING

THE BRLM RUNS THE BOOK TO MAINTAIN A RECORD OF THE DEMAND FOR THE SHARES OF THE COMPANY AT VARIOUS PRICES BOOK CLOSED

T+1

THE BRLM AND THE ISSUER COMPANY DETERMINES THE ISSUE PRICE (CUT OFF PRICE) AND THE SIZE

T+2

REGISTRAR DRAWS THE ALLOCATION LIST ALL ENTERED BIDS ASSUMED AS VALID

T+3

STOCK EXCHANGES APPROVE BASIS OF ALLOCATION FINAL PROSPECTUS PRINTED AND SUBMITTED TO ROC CONFIRMATION OF ALLOCATION NOTE SENT TO QIBs ALLOCATION DETAILS ELECTRONICALLY COMMUNICATED BY REGISTRAR/COMPANY TO BROKERS

T+4

PAY-IN (ONLY HIGH VALUE). BANKERS TO CONFIRM CLEARENCE OF FUND BOARD MEETING STOCK EXCHANGES TO ISSUE THE LISTING AND TRADING PERMISSION COMPANY TO INSTRUCT NSDL/CDSL TO CREDIT SHARES TO THE DEMAT ACCOUNT OF BROKERS

T+5

BROKERS ACCOUNT TO BE CREDITED WITH SHARES BROKERS TO CREDIT SHARES TO THE DEMAT ACCOUNT OF INVESTORS

T+6

TRADING COMMENCES

CONCLUSION

THEREFORE BOOK BUILDING IS A PROCESS OF PRICE AND DEMAND DISCOVERY FOR DETERMINING THE FINAL PRICE OF THE SECURITIES ON THE BASIS OF DEMAND GENERATED FOR NUMBER OF EQUITY SHARES OR OTHER SECURITIES AT VARIOUS PRICE LEVELS FOR ARRIVING AT THE FINAL PRICE FOR SUBSCRIBING TO THE ISSUE.

CONCLUSION

IT RESULTS IN FASTER DELIVERY OF FUNDS IT REDUCES COST MOST REALISTIC PRICE RISK OF FAILURE OF ISSUE REDUCED REDUCTION IN OVERALL TIME SCHEDULE

THANK YOU