ADVOKS GLOBAL · KENYA
The Capital Markets (Public Offers, Listings and Disclosures) Regulations, 2023
36. Green Shoe options
Edition: 2023-12-15 · In force
36. Green Shoe options
(1)An issuer making a public offer of securities may provide green shoe option in order to benefit from the demand for the securities if there is an oversubscription or to stabilise the post-listing price of the securities:Provided that—(a)the issuer has been authorized to include the green shoe option by a resolution passed in a duly constituted meeting of members of the issuer, which resolution shall specify the purpose for the green shoe option;(b)the information memorandum shall contain all material disclosures about the green shoe option including the securities to be offered in the green shoe option which shall not exceed thirty per cent of the specified offer amount and the use of the proceeds of the green shoe option, in particular, the information memorandum shall contain the following additional disclosures where applicable—(i)the maximum number of securities, in number and as a percentage of the proposed issue size, proposed to be over-allotted by the issuer;(ii)the maximum increase in the equity share capital of the issuer and the shareholding pattern, post-issue, in case the issuer is required to allot further equity shares to the extent of over-allotment in the issue;(iii)the maximum amount of funds to be received by the issuer in case of further allotment, and the use of the additional funds shall be disclosed in the offer document;(iv)the name of the stabilizing agent;(v)the period for which the issuer proposes to avail of the stabilization mechanism;(vi)the details of the agreement or arrangement entered into by the stabilizing agent with the promoters or shareholders to borrow equity shares from the latter including the name of each promoter or shareholder, their existing shareholding in the issuer, the number and percentage of equity shares to be lent by them and other important terms and conditions including rights and obligations of each party; and(vii)the number of equity shares to be allotted pursuant to the public issue, stating separately the number of equity shares to be borrowed from each promoter or shareholder and over-allotted by the stabilizing agent and the percentage of such equity shares in relation to the total issue size; and(c)with respect to a green shoe option for the purposes of stabilizing the price—(i)the issuer has appointed an investment bank or an underwriter as a stabilizing agent, who shall be responsible for the price stabilization process;(ii)before lodging the offer documents with the Authority, the issuer and the stabilizing agent shall have entered into an agreement, stating the terms and conditions relating to the green shoe option including fees charged and expenses to be incurred by the stabilizing agent for discharging its responsibilities, and such agreement shall have been delivered to the Authority;(iii)before lodging the offer documents with the Authority, the stabilizing agent shall have entered into an agreement with the promoters or pre-issue shareholders or both for borrowing specified securities from them in accordance with paragraph (vi);(iv)the agreement shall specify the maximum number of specified securities that may be borrowed for the purpose of allotment or allocation of specified securities in excess of the issue size (over-allotment), which shall not exceed thirty per cent of the issue size;(v)subject to paragraph (iii), the transaction adviser, in consultation with the stabilizing agent, shall determine the amount of specified securities to be over-allotted in the public issue;(vi)in the case of an initial public offer pre-issue shareholders and promoters, and in case of a further public offer pre-issue shareholders holding more than five per cent of specified securities, and promoters may lend specified securities to the extent of the proposed over-allotment; and(vii)the specified securities borrowed shall be in dematerialized form and allocation of the securities shall be made pro-rata to each successful applicant.(2)For the purpose of the stabilization of the post-listing price of the securities, the stabilizing agent shall determine the relevant aspects including the timing of buying or selling such securities, quantity to be bought or sold and the price at which such securities may be bought or sold in the market.(3)The stabilization process shall be available for a period of not more than thirty days from the date on which trading in the securities in the secondary market of the securities exchange commences.(4)The stabilizing agent shall open a special account with a licensed bank for crediting any monies received for the over-allotment and a special account with a central depository agent for crediting specified securities to be bought from the market during the stabilization period out of the monies credited in the special bank account.(5)On expiry of the stabilization period, if the stabilizing agent has not been able to buy specified securities from the market to the extent of such securities over-allotted, the issuer shall allot specified securities at issue price to the extent of the shortfall to the special account with the central depository agent.(6)The allotment in subregulation (5) shall be done within five days after the date of the closure of the stabilization period.(7)The specified securities referred to in subregulation (5) shall be returned to the promoters or pre-issue shareholders by the stabilizing agent in lieu of the specified securities borrowed from them and the account with the central depository agent shall be closed thereafter.(8)The issuer shall make a listing application in respect of the further specified securities allotted under subregulation (9), to the relevant securities exchange where the specified securities allotted in the public issue are listed.(9)The stabilizing agent shall remit the monies with respect to the specified securities allotted under subregulation (7) to the issuer from the special bank account.(10)Any monies left in the special bank account after remittance of monies to the issuer under subregulation (11) and deduction of expenses incurred by the stabilizing agent for the stabilization process shall be transferred to the Investor Compensation Fund established under the Act and the special bank account shall be closed soon thereafter.(11)The stabilizing agent shall submit a report to the securities exchange on a daily basis during the stabilization period and a final report to the Authority containing the following particulars—(a)the name of the issuer;(b)the name of the stabilizing agent;(c)the issue size being number of equity shares;(e)the issue closure date;(f)over-allotment in issue expressed as a percentage;(g)the date of commencement of trading;(h)the amount in the Green Shoe Option Bank Account in shillings;(i)the details of each promoter from whom shares were borrowed (name and number of shares borrowed);(j)the date on which the stabilization period ended;(k)the number of shares bought during the stabilization period;(l)the date on which issuer allotted further shares to the extent of shortfall;(m)the date when the shares were returned to each promoter;(n)the date when the money in the Green Shoe Option Bank Account was remitted to the issuer;(o)the details of the depository account (Special account for Green Shoe Option securities) where shares purchased from the market were kept including—(i)the name of the central depository agent;(iii)the number of shares purchased and the dates of the purchases; and(iv)the number of shares taken out and the date they were taken out;(p)the details of amount transferred to the Investor Compensation Fund in shillings; and(q)such other information as the Authority may require to be included in the report.(12)The stabilizing agent shall maintain a register for at least three years from the date of the end of the stabilization period containing particulars including the price, date and time in respect of each transaction effected in the course of the stabilization process, the details of allotment made by the issuer on expiry of the stabilization process, and any other information that the Authority may prescribe.(13)In this regulation, “stabilizing agent” means an entity, in most cases a transaction advisor, specifically appointed by the potential initial public offer issuer to stabilise post-initial-public-offer share prices by way of purchasing under-priced shares and selling overpriced shares.