Number of students are coming with a query of what is a Green Shoe Option, let me explain you:
The greenshoe option is a clause in the underwriting agreement of an IPO, which allows to sell additional shares, usually 15%, to the public if the demand exceeds expectations and the stock trades above its offering price.
This option, also known as the over-allotment provision. It gets its name from the Green Shoe company, which was the first company to allow such an option.
This option, also known as the over-allotment provision. It gets its name from the Green Shoe company, which was the first company to allow such an option.
Example:
ABC to embrace 'Green shoe' option
(China Daily)
Updated: 2010-07-13 11:17
In the ABC A-share offering, lead underwriters are entitled to exercise the green shoe option within 30 days following its listing.
Agricultural Bank of China (ABC) is the second company in the history of the Shanghai stock exchange to embrace the "green shoe" option - known in legal jargon as an over-allotment option - which allows members of its initial public offering (IPO) underwriting syndicate to sell additional shares if demand exceeds the original offering.
The green shoe can offer up to 15 percent more shares than the original number set by the issuer as a way for underwriters to stabilize the price of a new issue after its trading debut.
The name is derived from the Green Shoe Manufacturing Co, a boot maker founded in 1919 in the United States, the first company to permit underwriters to use this practice in its offering.
When used, the option aims to maintain the share price in the initial listing period and engineer a smooth transition to the secondary market.
The exercise is also expected to greatly lower investor risks for retail investors who subscribe to its online IPO tranche.
Industrial and Commercial Bank of China (ICBC), the world's biggest lender by market value, was the first Chinese company to use the green shoe practice in the A-share market in 2006 during what was then the world's biggest IPO.
ICBC priced its A-share IPO at 3.12 yuan and closed at 3.28 yuan on its first day of trading in Shanghai on October 27, 2006.
Its share prices later declined to as low as 3.25 yuan before rebounding to close the year at 6.36 yuan, or up 103.8 percent from its IPO price.
Greenshoe option makes
AgBank IPO the biggest
AgBank IPO the biggest
SHANGHAI: Agricultural Bank of China, or AgBank, boosted the size of its initial public offering to $22.1 billion after selling more stock in Shanghai, making it the world’s largest first-time share sale.
China’s biggest lender by customers said on Sunday it had fully exercised an over-allotment option, also known as a greenshoe, for the Shanghai portion of its initial public offering, selling a further 3.34 billion shares at the IPO price of 2.68 yuan apiece. That increased the Shanghai portion of the lender’s IPO to 67.6 billion yuan ($9.9 billion).
Over-allotments are released when demand for the shares in the after-market is heavy. Underwriters release the shares, set aside at the original IPO price, to the allocated holders who then become public stockholders.
AgBank had already exercised a similar option for its Hong Kong portion last month. The exercise of the over-allotment brings the number of shares sold in AgBank’s Hong Kong and Shanghai offerings to 54.79 billion, increasing the original $19.3 billion raised by 15%.
The expansion propels AgBank’s IPO past Industrial and Commercial Bank of China’s $21.9 billion sale in 2006 to become the world’s largest. The bank raised $20.8 billion selling shares in Hong Kong and Shanghai last month as chairman Xiang Junbo braved a stock-market rout that drove the Chinese benchmark index to a 15-month low.
AgBank has declined 0.4% since its July 15 debut in Shanghai, while in Hong Kong, where the stock started trading a day later, the shares have advanced 3.7%. Domestic investors in China ordered more than 10 times the stock available to them.
The Beijing-based lender is the last major Chinese bank to sell shares to the public, wrapping up a decade-long overhaul of the nation’s banking industry that cost the government an estimated $650 billion in bailouts and restructuring programmes.
China’s five biggest banks intend to raise a total of $63 billion this year by selling bonds and shares to replenish capital eroded by a record $1.4 trillion of new loans last year.
Rural Roots
The IPO of AgBank, once the weakest lender in China, makes the nation home to four of the world’s 10 biggest banks by market value, half a decade after the country’s first major state-owned lender went public.
The lender, established to serve the country’s farmers and less affluent rural areas, boosted profit by 26% to 65 billion yuan last year, and forecasts net income will rise to at least 82.9 billion yuan in 2010, according to its prospectus. China’s economic growth slowed to 10.3% in the second quarter from 11.9% in the previous three months.
China International Capital, Citic Securities, China Galaxy Securities and Guotai Junan Securities are managing the yuan-denominated A-share offer.
Greenshoe Option Helps China's Agricultural Bank Raise $22B
by CFO Innovation Staff, 16 August 2010
The Agricultural Bank of China Ltd has raised a total of $22.1 billion from its dual listing in Hong Kong and Shanghai
Agbank exercised the overallotment option—also known as a greenshoe—after struggling to stir interest among investors.
The overallotment option is a tool used by underwriters to limit volatility in a stock's price for a month after it lists. Prior to listing in Shanghai
Any queries in green shoe options are welcome.
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