Merchant bankers are selling the idea of having a greenshoe option with book-built issues to stabilise prices in the market post-listing.
The poor performance of some scrips in the market subsequent to listing led the disinvestment ministry to suggest some safety net for retail investors.
The guidelines, which are yet to be notified, recommended an underwriting that in the event the price goes down below the issue price then lead book runners will provide an exit route to investors at the issue price. This offer will be open for 60 days from the time of listing.
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Merchant bankers feel that once the greenshoe option is introduced it will stabilise the price of shares immediately after listing. The rationale for this is - the greenshoe option allows the company to retain the excess amount in case of an oversubscription, which means that all investors who have applied for the stock will get allotment.
The initial volatility in prices and subsequent dip in it is attributed to the demand exceeding supply of the stock, leading to the stock price zooming up immediately after listing and then crashing.
Not having a greenshoe option leads to a system of allotment where qualified institutional borrowers get the bulk of allotments and the rest is with retail investors. "Once the supply balances the demand, then the price will even out," industry circles said.
The additional liquidity in stock is also expected to be a balancing factor, sources said. This proposal is expected to be put up to the ministry of disinvestment, which has actually asked Sebi relax the guidelines with respect to the Maruti disinvestment.
Merchant bankers are not in favour of the underwriting clause as they feel that it will put them in an awkward position. The issue is still pending with the Securities and Exchange Board of India.