Description
It also defines what is red herring prospectus, what are the contents of red herring prospectus.
Green Shoe Option & Red Herring Prospectus
Green Shoe Option
Definition ? Objective ? Parties to the Agreement ? Role of a Stabilizing Agent ? Price Stability Mechanism – eg.
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Definition – Green Shoe Option
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It is an option of allocating shares in excess of the shares included in the public issue and operating a post-listing price stabilizing mechanism, which is granted to a company to be exercised through a Stabilizing Agent. This option acts as a safety net for the investor and is a standard global practice. The Green Shoe Company was the first entity to use this option.
Objective
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The basic purpose of this option is to operate a post-listing price Stability mechanism i.e. to check the market price from falling below the issue price. The green shoe option is available only in case of IPO and not for subsequent issues.
Parties to the Agreement
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The Issuing Company The Promoter The Stabilizing Agent
Clauses in the Agreement
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The SA shall enter into an agreement with the issuer company [clause 8A.2] The SA shall also enter into an agreement with the promoters who will lend their shares. Maximum number of shares that may be borrowed from the promoters shall not be in excess of 15% of the total issue size. [clause 8A.3]. The details of the agreements mentioned in clause 8A.2 (between Company and SA) and 8A.3 (between SA and promoters) shall be disclosed in the draft Red Herring prospectus, Red Herring prospectus and the final prospectus.
Role of Stabilizing Agent
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One of the lead book runners is appointed as the Stabilizing Agent (SA) The prime responsibility of the SA shall be to stabilize post listing price of the shares. SA is given a fixed fee for its services. The SA shall borrow shares from the promoters of the company to the extent of the proposed over-allotment. 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. [clause 8A.14].
Price Stability Mechanism
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SA borrows shares from the promoters The issuing company issues shares in the form of public issue Two separate Accounts are opened by the SA(i) GSO Bank Account (ii) GSO Demat Account
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The proceeds from the issue of borrowed shares is kept in GSO Bank account The share bought by SA are credited to the GSO Demat Account After the stabilization period is over, the GSO Demat Account is squared off and any shortfall in the amount of shares, is ascertained The company makes a fresh allotment of share to the extent of the shortfall to the GSO Demat Account SA pays the company for the fresh allotment from the GSO Bank Account After the expiration of the GSO, any balance in the GSO Bank Account is transferred to the Investor Protection Fund Account of the designated stock exchange.
Red Herring Prospectus
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Definition Purpose Contents of the RHP
Definition – Red Herring Prospectus
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RHP issued in accordance with Section 60B of the Companies Act, which does not have complete particulars on the price at which the Equity Shares are issued and the size of the Issue. RHP would be filed with the RoC at least three days before the opening of the Bid/Issue and will become a prospectus after filing with the RoC after the pricing and allocation
Purpose
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The main purpose of this document is to give the potential investors and underwriters the necessary information about IPO issuing company. The reason it is called a ‘Red Herring’ is due to a disclosure statement printed in red ink on the cover which explicitly states that the issuing company is not attempting to sell its shares before the registration is approved by SEBI.
Contents of the RHP
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Introduction
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The Industry overview The Company overview
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Financial Information Legal & Regulatory Information Issue Related Information
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Terms of the issue Issue Structure Issue Procedure
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Main provision of the Article of Association
doc_302519354.pptx
It also defines what is red herring prospectus, what are the contents of red herring prospectus.
Green Shoe Option & Red Herring Prospectus
Green Shoe Option
Definition ? Objective ? Parties to the Agreement ? Role of a Stabilizing Agent ? Price Stability Mechanism – eg.
?
Definition – Green Shoe Option
?
?
?
It is an option of allocating shares in excess of the shares included in the public issue and operating a post-listing price stabilizing mechanism, which is granted to a company to be exercised through a Stabilizing Agent. This option acts as a safety net for the investor and is a standard global practice. The Green Shoe Company was the first entity to use this option.
Objective
?
?
The basic purpose of this option is to operate a post-listing price Stability mechanism i.e. to check the market price from falling below the issue price. The green shoe option is available only in case of IPO and not for subsequent issues.
Parties to the Agreement
? ? ?
The Issuing Company The Promoter The Stabilizing Agent
Clauses in the Agreement
?
?
?
The SA shall enter into an agreement with the issuer company [clause 8A.2] The SA shall also enter into an agreement with the promoters who will lend their shares. Maximum number of shares that may be borrowed from the promoters shall not be in excess of 15% of the total issue size. [clause 8A.3]. The details of the agreements mentioned in clause 8A.2 (between Company and SA) and 8A.3 (between SA and promoters) shall be disclosed in the draft Red Herring prospectus, Red Herring prospectus and the final prospectus.
Role of Stabilizing Agent
?
?
? ? ?
One of the lead book runners is appointed as the Stabilizing Agent (SA) The prime responsibility of the SA shall be to stabilize post listing price of the shares. SA is given a fixed fee for its services. The SA shall borrow shares from the promoters of the company to the extent of the proposed over-allotment. 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. [clause 8A.14].
Price Stability Mechanism
? ? ?
SA borrows shares from the promoters The issuing company issues shares in the form of public issue Two separate Accounts are opened by the SA(i) GSO Bank Account (ii) GSO Demat Account
? ? ? ?
?
?
The proceeds from the issue of borrowed shares is kept in GSO Bank account The share bought by SA are credited to the GSO Demat Account After the stabilization period is over, the GSO Demat Account is squared off and any shortfall in the amount of shares, is ascertained The company makes a fresh allotment of share to the extent of the shortfall to the GSO Demat Account SA pays the company for the fresh allotment from the GSO Bank Account After the expiration of the GSO, any balance in the GSO Bank Account is transferred to the Investor Protection Fund Account of the designated stock exchange.
Red Herring Prospectus
? ? ?
Definition Purpose Contents of the RHP
Definition – Red Herring Prospectus
?
?
RHP issued in accordance with Section 60B of the Companies Act, which does not have complete particulars on the price at which the Equity Shares are issued and the size of the Issue. RHP would be filed with the RoC at least three days before the opening of the Bid/Issue and will become a prospectus after filing with the RoC after the pricing and allocation
Purpose
?
?
The main purpose of this document is to give the potential investors and underwriters the necessary information about IPO issuing company. The reason it is called a ‘Red Herring’ is due to a disclosure statement printed in red ink on the cover which explicitly states that the issuing company is not attempting to sell its shares before the registration is approved by SEBI.
Contents of the RHP
?
Introduction
? ?
The Industry overview The Company overview
? ? ?
Financial Information Legal & Regulatory Information Issue Related Information
? ? ?
Terms of the issue Issue Structure Issue Procedure
?
Main provision of the Article of Association
doc_302519354.pptx