Miscellaneous
PART VII. MISCELLANEOUS
Regulation 56. Restriction on further capital issues
The issuer cannot make any further issue of specified securities during the restricted period.
The restriction applies from:
The date of filing the Draft Offer Document; and
Until the listing of the specified securities offered through the offer document or refund of application monies.
During this period, the issuer cannot make a further issue through:
Public issue.
Rights issue.
Preferential issue.
Qualified Institutions Placement (QIP).
Bonus issue.
Any other manner of issue.
Exception: The issuer may make an issue pursuant to:
Employee Stock Option Scheme (ESOP); or
Stock Appreciation Right (SAR) Scheme.
A further issue can otherwise be made during this period if the issuer has already made full disclosure of the proposed further issue.
The disclosure must specify:
The total number of specified securities proposed to be issued; or
The total amount proposed to be raised through the further issue.
These details must be disclosed in the Draft Offer Document or Offer Document, as applicable.
Regulation 57. Price stabilisation through green shoe option
57(1).
Green Shoe Option for Price Stabilisation
The issuer may provide a Green Shoe Option (GSO) in its public issue.
The purpose of the Green Shoe Option is to stabilise the post-listing price of the specified securities.
Price stabilisation is carried out after the securities are listed.
The Green Shoe Option is subject to the following conditions:
(a). Authorisation to Allot Securities to Stabilising Agent
The issuer must obtain authorisation through a resolution passed at a general meeting of its shareholders approving the public issue.
This resolution must authorise the issuer to allot specified securities to the stabilising agent, if required.
The allotment can take place after the expiry of the stabilisation period.
The allotment is conditional, meaning it is made only if required under the Green Shoe Option mechanism.
(b). Appointment of Stabilising Agent
The issuer must appoint a lead manager to act as the stabilising agent.
The stabilising agent is responsible for carrying out the price stabilisation process.
The stabilising agent performs this role under the Green Shoe Option mechanism.
Its responsibility is to take the prescribed steps to stabilise the post-listing price of the specified securities during the stabilisation period.
(c). Agreement Between Issuer and Stabilising Agent
Before filing the Draft Offer Document, the issuer and the stabilising agent must enter into an agreement.
The agreement must set out all the terms and conditions relating to the Green Shoe Option.
The agreement must specifically cover:
The fees payable to the stabilising agent.
The expenses to be incurred by the stabilising agent while performing its responsibilities.
(d). Agreement for Borrowing Securities and Overallotment
Before filing the Offer Document, the stabilising agent must enter into an agreement with:
The promoters; or
The pre-issue shareholders; or
Both promoters and pre-issue shareholders.
Under this agreement, the promoters or pre-issue shareholders agree to lend specified securities to the stabilising agent.
The securities are borrowed for the purpose specified under clause (g) of the sub-regulation.
The agreement must specify the maximum number of specified securities that may be borrowed.
These borrowed securities may be used for allotment or allocation of securities beyond the original issue size. This is called “overallotment”.
The maximum overallotment cannot exceed 15% of the issue size.
Example:
Issue size = 100 lakh shares.
Maximum securities that can be borrowed for overallotment = 15 lakh shares.
Therefore, total allotment can go up to 115 lakh shares under the Green Shoe Option.
(e). Determination of Overallotment
The lead manager, in consultation with the stabilising agent, shall determine the number of specified securities to be over-allotted in the public issue.
This determination must be made subject to clause (d).
Clause (d) sets the maximum limit for the securities that can be borrowed for overallotment.
Therefore, the lead manager and stabilising agent can decide the actual overallotment required, but it cannot exceed the limit prescribed under clause (d).
(f). Disclosure of Green Shoe Option
The Draft Offer Document and the Offer Document must contain all material disclosures relating to the Green Shoe Option.
The disclosures must cover the matters specifically prescribed in Part A of Schedule VI.
The information should provide investors with the material details necessary to understand the Green Shoe Option and its operation.
(g). Lending of Specified Securities for Over-allotment
In an Initial Public Offer (IPO), the following persons may lend specified securities:
Pre-issue shareholders.
Promoters.
In a Further Public Offer (FPO), the following persons may lend specified securities:
Pre-issue shareholders holding more than 5% of the specified securities.
Promoters.
The securities may be lent only to the extent of the proposed over-allotment under the Green Shoe Option.
These borrowed securities are used to facilitate the over-allotment in the public issue.
(h). Form and Allocation of Borrowed Securities
The specified securities borrowed for the Green Shoe Option must be held in dematerialised form.
These borrowed securities are allocated to the successful applicants in the public issue.
The allocation must be made on a pro-rata basis.
Pro-rata allocation means the additional securities are distributed proportionately among all successful applicants.
57(2). Determination of Stabilisation Parameters
The stabilising agent is responsible for deciding how the post-listing price stabilisation will be carried out.
The stabilising agent determines the timing for purchasing the specified securities from the market.
It determines the quantity of specified securities to be purchased.
It also determines the price at which the securities will be purchased from the market.
57(3). Duration of Stabilisation Process
The stabilisation process can continue for a maximum period of 30 days.
The 30-day period begins from the date on which the stock exchanges grant trading permission for the specified securities allotted in the public issue.
The stabilising agent can undertake the price stabilisation activities only during this permitted period.
The period cannot exceed 30 days.
57(4). Special Accounts for Stabilisation
The stabilising agent must open a special bank account, separate from the normal issue account.
Money received from applicants against the over-allotment must be credited to this special bank account.
The stabilising agent must also open a special account with a depository participant.
Specified securities purchased from the market during the stabilisation period must be credited to this depository account.
The securities must be purchased using the money available in the special bank account.
Therefore, the process involves two separate accounts:
Special bank account: holds money received against the over-allotment.
Special depository account: holds specified securities purchased from the market for stabilisation.
57(5).
Return of Securities After Stabilisation
The specified securities purchased from the market during the stabilisation period must be credited to the special depository account.
These securities must then be returned to the promoters or pre-issue shareholders from whom the securities were borrowed.
The return must be made immediately after the stabilisation period ends.
In any case, the securities must be returned within a maximum of 2 working days after the end of the stabilisation period.
57(6). Allotment of Securities for Shortfall
At the end of the stabilisation period, the stabilising agent checks whether it was able to purchase from the market all the securities that were over-allotted.
If the stabilising agent could not purchase securities to the full extent of the over-allotment, there is a shortfall.
The issuer must allot specified securities equal to the shortfall.
These securities must be allotted at the issue price and in dematerialised form.
The securities must be credited to the special account with the depository participant.
This allotment must be completed within 5 days from the closure of the stabilisation period.
The stabilising agent then returns these securities to the promoters or pre-issue shareholders.
The securities are returned in lieu of the securities originally borrowed from them for the Green Shoe Option.
After the securities are returned, the special depository participant account must be closed.
57(7). Listing of Further Specified Securities
The issuer must make a listing application for the further specified securities allotted under sub-regulation (6).
The application must be made to all stock exchanges where the specified securities from the original public issue are listed.
These further securities are the securities allotted by the issuer to cover the shortfall in the Green Shoe Option.
Chapter V of the ICDR Regulations does not apply to this particular allotment.
Therefore, the issuer has to seek listing of these additional securities, but the normal requirements under Chapter V are excluded for this allotment.
57(8). Remittance of Money to the Issuer
The stabilising agent must transfer the money relating to the specified securities allotted under sub-regulation (6) to the issuer.
The money must be transferred from the special bank account opened for the Green Shoe Option.
This relates to the securities allotted by the issuer to cover the shortfall in securities purchased from the market during the stabilisation period.
57(9).
Transfer of Remaining Money
After the stabilising agent remits the required money to the issuer under sub-regulation (8), the balance remaining in the special bank account is considered.
The stabilising agent can deduct the expenses actually incurred for carrying out the stabilisation process.
Any money remaining after:
Payment to the issuer; and
Deduction of stabilisation expenses, must be transferred to the Investor Protection and Education Fund (IPEF) established by SEBI.
After transferring the remaining money to the IPEF, the special bank account must be closed soon thereafter.
57(10).
Reporting by the Stabilising Agent
The stabilising agent must submit a report to the stock exchange every day during the stabilisation period.
The daily reporting requirement continues throughout the entire stabilisation period.
After the stabilisation period ends, the stabilising agent must submit a final report to the Board.
The final report must be prepared in the format specified in Schedule XV.
57(11).
Register to be Maintained by the Stabilising Agent
The stabilising agent must maintain a register containing complete records of the Green Shoe Option stabilisation process.
The register must be preserved for at least 3 years from the date on which the stabilisation period ends.
(a). Details of promoters or pre-issue shareholders from whom securities were borrowed:
The register must identify each promoter or pre-issue shareholder who lent specified securities.
It must record the number of specified securities borrowed from each person separately.
This creates a clear record of the source and quantity of securities used for the over-allotment.
(b). Details of each transaction during the stabilisation process:
The register must record the price at which each transaction was carried out.
It must record the date on which each transaction took place.
It must also record the exact time of each transaction.
These details relate to every transaction undertaken during the stabilisation process.
(c). Details of allotment after the stabilisation period:
The register must record the details of securities allotted by the issuer after the stabilisation period expires.
This covers the additional allotment made to address any shortfall where the stabilising agent could not purchase the required securities from the market.
It provides a record of the final securities allotted by the issuer as part of the stabilisation process.
Regulation 58. Alteration of rights of holders of specified securities
Restriction on Alteration of Terms
The issuer cannot alter the terms of the specified securities if the alteration may adversely affect the interests of the holders of that class of specified securities.
This includes altering the terms of issue of the specified securities.
Such an alteration is permitted only if one of the following approvals is obtained:
Written consent from holders of at least three-fourths of the specified securities of that class or
A special resolution passed at a meeting of the holders of the specified securities of that class.
Therefore, the issuer cannot unilaterally change terms that could negatively affect security holders.
Regulation 59. Post-listing exit opportunity for dissenting shareholders'
Exit Offer to Dissenting Shareholders
If the issuer changes the objects for which the issue proceeds were raised, the promoters or shareholders in control must provide an exit offer to dissenting shareholders.
The same requirement applies if the issuer varies the terms of a contract relating to those objects mentioned in the offer document.
The exit offer must be provided in accordance with the Companies Act, 2013.
The conditions and manner for making this exit offer are prescribed in Schedule XX.
Therefore, shareholders who disagree with the change in objects or variation of the related contract are given an opportunity to exit their investment.
Exception to Exit Offer
The exit offer requirement does not apply where the issuer has neither:
Any identifiable promoters nor
Any shareholders who are in control of the issuer.
Therefore, if there is no identifiable promoter and no shareholder exercising control over the issuer, no exit offer is required for dissenting shareholders under this provision.
