GREEN
SHOE OPTION - ECONOMY
News:
Swan Energy Launches ₹3k
Cr QIP With ₹1k Cr Green Shoe Option
What's
in the news?
●
Swan Energy launches QIP with an over need
of ₹3000 crore with nearly 1000 crore aim from green shoe option.
Green
Shoe Option:
●
Under a green shoe option, the issuing
company has the option to allocate additional
equity shares up to a specified amount.
●
It is nothing but a clause contained in
the underwriting agreement of an IPO.
●
It is also known as an over-allotment
provision.
Features:
●
It allows the underwriter of a public
offer to sell additional shares to the public if the demand is high.
●
It permits the underwriters to buy up to
an additional 15% of the shares at the
offer price if public demand for the shares exceeds expectations and the
share trades above its offering price.
●
It is primarily used at the time of IPO or
listing of any stock to ensure a successful opening price.
●
Accordingly, companies can intervene in
the market to stabilise share prices
during the first 30days time window immediately after listing.
●
It involves the purchase of equity shares
from the market by the underwriting syndicate in case the share price fall
below the issue price or goes significantly above the issue price.
●
It acts as a price stabilising mechanism.
From the investor’s point of view, an IPO with a green shoe option ensures that after listing the share price will not
fall below its offer price.
Options
for an Underwriter:
●
The underwriter may invoke the greenshoe
share option either in part or in full,
i.e. the underwriter can buy back either all or a part of the shares as part of
the greenshoe share option depending on the price action of the underlying
stock relative to the offer price.