Greenshoe
A greenshoe option (including over-allotment option or over-allotment option ) is a securities -Platzierungsreserve of issuers ( joint stock company ) in a public offering as part of a book-building process . More precisely, it is a call option that grants the syndicate bank or banks ( lead underwriter ) the right to subsequently buy a specified additional number of securities at the issue price. The English name comes from the company of the same name ( Stride Rite Corporation since 1966 ), which was the first to include such a contractual condition when it went public in 1960.
functionality
If a new issue is oversubscribed , i.e. the demand for the shares to be issued is greater than the offer ( underpricing ), the banks involved in the IPO (syndicate banks) can issue additional securities under the same conditions (original conditions, same prices as for the first issue) for which the regularly issued shares were issued. In this case, you take full or partial use of a previously determined over-allotment option, i.e. an additional reserve of securities. The aim of building up and, if necessary, using such a reserve at a later date is to satisfy demand and stabilize prices in order to avoid excessive fluctuations immediately after the share issue. The over-allotment option can be exercised up to six weeks after an IPO; however, a term of 30 days is usual. According to international standards, the greenshoe option is between 10 and 15 percent of the number of shares issued.
If there is insufficient demand in the bookbuilding process , the over-allotment option will not be redeemed. Redeeming the over-allotment option would result in the issuance of additional securities, which would increase the offering and thus further decrease the price. This is not desirable if the price is already low due to the low demand.
Structure of Greenshoes
In most cases, the shares that are placed in an IPO consist mainly of new shares that are created in the course of a capital increase immediately before the IPO. The greenshoe, on the other hand, consists mostly of old shares that are made available by an existing shareholder. In some cases, however, the greenshoe consists of new stocks issued as part of an additional capital increase in the event of the greenshoe being exercised (or a mixture of the two types of stocks). However, in the latter case, course stabilization measures can only be carried out to a limited extent.
Course protection through Greenshoes
Another way of using the greenshoe that can be found in practice is to secure the course against falling prices. In this case, the greenshoe consists of a securities loan from a third shareholder, who undertakes to sell the shares if the securities issue is successful (similar to a reverse open offer ). The issuing company is now placing the issue and the entire greenshoe in the hope that these will be well received by the market. If this is not the case and the price drops sharply, the consortium bank responsible for stabilizing the price has the option of buying back shares within the statutory period of 30 days. In this case, it simply returns the borrowed shares and has often made a small profit due to the positive difference between the placement price, the repurchase price and the securities lending fees.
Advantages and disadvantages of the greenshoes
In particular, the additional flexibility to be able to react at short notice to rising or falling demand for the shares is an advantage of greenshoes. This gives the issuer and the accompanying banks the option of being able to place the largest possible number of shares with an expanded risk buffer at the same time. In the event of low demand, the greenshoe can simply be dispensed with and a "successful" placement (which may even be slightly oversubscribed) can be announced.
If the greenshoe is linked to the issue of new shares, exercising it has a corresponding dilutive effect for the other shareholders, which is often viewed negatively.
Origin of name
The name "Greenshoe" goes back to the American company Green Shoe Manufacturing Company from Boston , which first made use of this process in 1963.
Web links
Footnotes
- ↑ a b IPOs and information problems (PDF; 234 kB)
- ↑ See e.g. B. IPO of Greater China Precision Components Limited in the Entry Standard of the Frankfurt Stock Exchange in 2007