Chapter 8A - GREEN SHOE OPTION - SEBI (Disclosure and Investor Protection Guidelines) 2000

1 (CHAPTER VIII-A GREEN SHOE OPTION 8A.1 (a) 2 (An issuer company making a public offer of equity shares can avail of the Green Shoe Option (GSO) for stabilizing the post listing price of its shares, subject to the provisions of this Chapter.) (b) A company desirous of availing the option granted by this Chapter, shall in the resolution of the general meeting authorizing the public issue, seek authorization also for the possibility of allotment of further shares to the stabilizing agent (SA) at the end of the stabilization period in terms of clause 8A.15. 8A.2 The company shall appoint one of the 3 (merchant bankers or Book Runners, as the case may be, from amongst) the issue management team, as the stabilizing agent (SA), who will be responsible for the price stabilization process, if required. The SA shall enter into an agreement with the issuer company, prior to filing of offer document with SEBI, clearly stating all the terms and conditions relating to this option including fees charged / expenses to be incurred by SA for this purpose. 8A.3 4 ((a) The SA shall also enter into an agreement with the promoter(s) or preissue shareholders who will lend their shares under the provisions of this Chapter, specifying the maximum number of shares that may be borrowed from the promoters or the shareholders, which shall not be in excess of 15% of the total issue size.) 8A.4 The details of the agreements mentioned in clause 8A.2 and 8A.3 shall be disclosed in 5 (the draft prospectus,) the draft Red Herring prospectus, Red Herring prospectus and the final prospectus. The agreements shall also be included as material documents for public inspection in terms of 6 (clause 6.15.1). 8A.5 7 (Lead merchant banker or the) Lead Book Runner, in consultation with the SA, shall determine the amount of shares to be overallotted with the public issue, subject to the maximum number specified in clause 8A.3. 8A.6 The 8 (draft prospectus,) draft Red Herring prospectus, the Red Herring prospectus and the final prospectus shall contain the following additional disclosures: a. Name of the SA b. The maximum number of shares (as also the percentage vis a vis the proposed issue size) proposed to be over-allotted by the company. c. The period, for which the company proposes to avail of the stabilization mechanism, d. The maximum increase in the capital of the company and the shareholding pattern post issue, in case the company is required to allot further shares to the extent of over-allotment in the issue. e. The maximum amount of funds to be received by the company in case of further allotment and the use of these additional funds, in final document to be filed with RoC f. Details of the agreement/ arrangement entered in to by SA with the promoters to borrow shares from the latter which inter-alia shall include name of the promoters, their existing shareholding, number percentage of shares to be lent by them and other important terms and conditions including the rights and obligations of each party. g. The final prospectus shall additionally disclose the exact number of shares to be allotted pursuant to the public issue, stating separately therein the number of shares to be borrowed from the promoters and overallotted by the SA, and the percentage of such shares in relation to the total issue size. 8A.7 9 ((a) In case of an initial public offer by a unlisted company, the promoters and pre-issue shareholders and in case of public issue by a listed company, the promoters and pre- issue shareholders holding more than 5% shares, may lend the shares subject to the provisions of this Chapter. (b) The SA shall borrow shares from the promoters or the pre-issue shareholders of the issuer company or both, to the extent of the proposed over-allotment. Provided that the shares referred to in this clause shall be in dematerialized form only.) 8A.8 The allocation of these shares shall be pro-rata to all the applicants. 8A.9 The stabilization mechanism shall be available for the period disclosed by the company in the prospectus, which shall not exceed 30 days from the date when trading permission was given by the exchange(s). 8A.10 The SA shall open a special account with a bank to be called the Special Account for GSO proceeds of _____ company (hereinafter referred to as the GSO Bank account) and a special account for securities with a depository participant to be called the Special Account for GSO shares of company (hereinafter referred to as the GSO Demat Account). 8A.11 The money received from the applicants against the overallotment in the green shoe option shall be kept in the GSO Bank Account, distinct from the issue account and shall be used for the purpose of buying shares from the market, during the stabilization period. 8A.12 The shares bought from the market by the SA, if any during the stabilization period, shall be credited to the GSO Demat Account. 8A.13 The shares bought from the market and lying in the GSO Demat Account shall be returned to the promoters immediately, in any case not later than 2 working days after the close of the stabilization period. 8A.14 The prime responsibility of the SA shall be to stabilize post listing price of the shares. To this end, 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. 8A.15 On expiry of the stabilization period, in case the SA does not buy shares to the extent of shares over-allotted by the company from the market, the issuer company shall allot shares to the extent of the shortfall in dematerialized form to the GSO Demat Account, within five days of the closure of the stabilization period. These shares shall be returned to the promoters by the SA in lieu of the shares borrowed from them and the GSO Demat Account shall be closed thereafter. The company shall make a final listing application in respect of these shares to all the Exchanges where the shares allotted in the public issue are listed. The provisions of Chapter XIII shall not be applicable to such allotment. 8A.16 The shares returned to the promoters under clause 8A.13 or 8A.15, as the case may be, shall be subject to the remaining lock in period as provided in the proviso the clause 4.14.1. 8A.17 The SA shall remit an amount equal to (further shares allotted by the issuer company to the GSO Demat Account) * (issue price) to the issuer company from the GSO Bank Account. The amount left in this account, if any, after this remittance and deduction of expenses incurred by the SA for the stabilization mechanism, shall be transferred to the investor protection fund(s) of the stock exchange(s) where the shares of issuer company are listed, in equal parts if the shares are listed in more than one exchanges. The GSO Bank Account shall be closed soon thereafter. 8A.18 The SA shall submit a report to the stock exchange(s) on a daily basis during the stabilization period. The SA shall also submit a final report to SEBI in the format specified in Schedule XXIX. This report shall be signed by the SA and the company. This report shall be accompanied with a depository statement for the GSO Demat Account for the stabilization period, indicating the flow of the shares into and from the account. The report shall also be accompanied by an undertaking given by the SA and countersigned by the depository(ies) regarding confirmation of lock-in on the shares returned to the promoters in lieu of the shares borrowed from them for the purpose of the stabilization, as per the requirement specified in 8A.16. 8A.19 The SA shall maintain a register in respect of each issue having the green shoe option in which he acts as a SA. The register shall contain the following details of: 10 (a) in respect of each transaction effected in the course of the stabilizing action, the price, date and time 11 (b) the details of the promoters from whom the shares are borrowed and the number of shares borrowed from each; and 12 (c) details of allotments made under clause 8A.15. 8A.20 The register must be retained for a period of at least three years from the date of the end of the stabilizing period. 8A.21 13 (For the purpose of the Chapter VIII-A, (a) promoter means a promoter as defined in Explanation I to clause 6.4.2.1of these guidelines. (b) Over allotment shall mean as an allotment or allocation of shares in excess of the size of a public issue, made by the SA out of shares borrowed from the promoters or the pre-issue shareholders or both, in pursuance of a green shoe option exercised by the company in accordance with the provisions of this Chapter.)) ********** 1 Inserted Chapter, vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003. 2 Substituted vide SEBI Circular No. SEBI/CFD/DIL/DIP/13/2004/28/5 dated May 28, 2004 for the following: (a) In case an issuer company is making an initial public offer of equity shares through the book building mechanism, the company can avail of the Green Shoe option (GSO) for stabilizing the post listing price of its shares, subject to the provisions of this Chapter . 3 Substituted vide SEBI Circular No. SEBI/CFD/DIL/DIP/13/2004/28/5 dated May 28, 2004 for Lead book runners, amongst . 4 Substituted vide circular no SEBI/CFD/DIL/DIP/13/2004/28/5 dated May 28, 2004 for the following: The SA shall also enter into an agreement with the promoter(s) who will lend their shares for the purpose of clause 8A.5, specifying the maximum number of shares that may be borrowed from the promoters, which shall not be in excess of 15% of the total issue size. 5 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/13/2004/28/5 dated May 28, 2004. 6 Substituted vide circular SEBI Circular No. SEBI/CFD/DIL/DIP/14/2005/25/1 dated January 25, 2005, for clause 6.19.15 . 7 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/13/2004/28/5 dated May 28, 2004. 8 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/13/2004/28/5 dated May 28, 2004. 9 Substituted vide SEBI Circular No. SEBI/CFD/DIL/DIP/13/2004/28/5 dated May 28, 2004 for the following: The SA shall borrow shares from the promoters of the company to the extent of the proposed over-allotment. These shares shall be in dematerialized form only. For the purposes of this clause, promoter means a promoter as defined in Explanation I to clause 6.4.2.1. 10 Numbered the bulleted sub-clause, vide SEBI Circular No. SEBI/CFD/DIL/DIP/14/2005/25/1 dated January 25, 2005. 11 Numbered the bulleted sub-clause, vide SEBI Circular No. SEBI/CFD/DIL/DIP/14/2005/25/1 dated January 25, 2005. 12 Numbered the bulleted sub-clause, vide SEBI Circular No. SEBI/CFD/DIL/DIP/14/2005/25/1 dated January 25, 2005. 13 Substituted vide SEBI Circular No. SEBI/CFD/DIL/DIP/13/2004/28/5 dated May 28, 2004 for the following: For the purpose of the Chapter VIII-A, Over allotment shall be defined as an allocation of shares in excess of the size of a public issue, made by the SA out of shares borrowed from the promoters, in pursuance of a green shoe option exercised by the company in accordance with the provisions of the said Chapter.