GSO is a price stabilizing methodology

1. GREENSHOE
OPTION

2. Greenshoe Option/over-allotment
option/price stability Mechanism
• A greenshoe option is an over-allotment option in the context of an IPO.
• A greenshoe option was first used by the Green Shoe Manufacturing
Company (now part of Wolverine World Wide, Inc.)
• Greenshoe options typically allow underwriters to sell up to 15% more
shares than the original issue amount.
• Greenshoe options provide price stability and liquidity.
• A greenshoe option is an over-allotment option. In the context of an initial
public offering (IPO), it is a provision in an underwriting agreement that
grants the underwriter the right to sell investors more shares than initially
planned by the issuer if the demand for a security issue proves higher
than expected.

3. HOW
IT
WORKS
Permission in General Meeting
Include in RHP/Final prospectus
15% of the issue size
With in 30 days
Borrow from Promoters
Open GSO Bank Account
Open GSO DEMAT Account

4. GSO MECHANISM
‘A’ Company comes up with a issue of 1L shares shares
@ 100 per share
An additional 15K shares shall also be floated additionally
if the company resorts for GSO
Total amount collected will be ₹1 Cr to be credited to
Issue account and additional ₹15L to GSO Bank account
Once the listing is done, There are three possibilities:

5. 1. If price reduces to ₹85
 SA tries to stabilize the price by creating Artificial demand
 Through the process of buying
 If 2000 shares are bought @ 85 = ₹170000
 Additional 6000 shares @ 90 = ₹ 540000
 Fruther 7000 shares @ 98 = ₹ 686000
 Total money spent = ₹ 1396000
 Initial amount deposited to GSO Bank a/c during issue is ₹1500000.
 Now spent on buying is ₹1396000
 Difference(₹104000) to be transferred to IPF of SE where the co. is listed
 The shares bought back shall be credited to GSO Demat account and returned to
promoters in 2 days of close of stabilization period

6. 2. If Price is ₹100
 No need to create artificial demand
 The company shall allot additional 15K shares to SA
 In turn it would be returned to Promoters
 And Money collected during issue transferred to company

7. 3. If price is 90
 SA would create artificial demand and
 Buy 10000 shares, by then if the price is back to its original
 Or in the Stabilization period if SA is unable to increase price
and
 Is not buying the entire additional issue(15K shares)
 Or if there are no sellers
 In any case the issuer company shall allot shares to the
extent of shortfall in the dematerialised form to the GSO
Demat account with in 5 days of the closure of stabilisation
period.