“Lock-in” indicates a freeze on the shares. SEBI ICDR Regulations 2009 have stipulated lock-in requirements on shares of promoters mainly to ensure that the promoters or main persons, who are controlling the company, shall continue to hold some minimum percentage in the company after the public issue. The requirements are detailed in Chapter III Part IV of SEBI ICDR Regulations 2009.
The promoter has been defined as a person or persons who are in control of the company, who are instrumental in the formulation of a plan or programme pursuant to which the securities are offered to the public and those named in the prospectus as promoters(s). It may be noted that a director / officer of the issuer company or person, if they are acting as such merely in their professional capacity are not be included in the definition of a promoter. However a financial institution, scheduled bank, foreign Institutional Investor and mutual fund shall not be deemed to be a Promoter merely by virtue of the fact that too go or more of the equity share capital of the issuer is held by such person. Further, such financial institutions scheduled bank and foreign institutional investor shall be treated as promoter for the subsidiaries or companies promoted by them or for the mutual fund sponsored by them.
'Promoter Group' includes the promoter, an immediate relative of the promoter (i.e. any spouse of that person, or any parent, brother, sister or child of the person or of the spouse). In case promoter is a body corporate, a subsidiary or holding company of that body corporate; any body corporate in which the promoter holds 10% or more of the equity capital or which holds 10% or more of the equity capital of the Promoter; any body corporate in which a group of individuals or companies or combinations thereof who holds 20% or more of the equity capital in that company also holds 20% or more of the equity capital of the issuer company. In case the promoter is an individual, any body corporate in which 10% or more of the share capital is held by the promoter or an immediate relative of the promoter' or a firm or HUF in which the 'Promoter' or any one or more of his immediate relative is a member; any body corporate in which a body corporate specified in (i) above, holds 10% or more, of the share capital; any HUF or firm in which the aggregate share of the promoter and his immediate relatives is equal to or more than 10% of the total, and all persons whose shareholding is aggregated for the purpose of disclosing in the prospectus "shareholding of the promoter group"
The details are provided in the SEBI ICDR Regulations 2009.
Promoter's Contribution and Lock-in
In case of an IPO/FPO, the promoters have to necessarily offer at least 20% of the post issue capital. In case of public issues by listed companies, the promoters shall participate either to the extent of 20% of the proposed issue or ensure post-issue share holding to the extent of 20% of the post-issue capital.
In case of any issue of capital to the public the minimum contribution of promoters shall be locked in for a period of three years, both for an IPO/FPO and public issue by listed companies. In case of an IPO/FPO, if the promoters' contribution in the proposed issue exceeds the required minimum contribution, such excess contribution shall also be locked in for a period of one year. Green shoe Option
A Green Shoe option means an option of allocating shares in excess of the equity shares offered in the public issue as a post-listing price stabilizing mechanism for a period not exceeding 30 days in accordance with the provisions of Chapter III Part V of SEBI ICDR Regulations 2009, which is granted to a company to be exercised through a Stabilizing Agent. This is an arrangement wherein the issue would be over allotted to the extent of a maximum of 15% of the issue size. From an investor’s perspective, an issue with green shoe option provides more probability of getting shares and also that post listing price may show relatively more stability as compared to market.
In a safety net scheme or a buy back arrangement the issuer company in consultation with the lead merchant banker discloses in the RHP that if the price of the shares of the company post listing goes below a certain level the issuer will purchase back a specific number of shares from original resident retail allottees at the issue price.
There are two types of underwriting.
Hard underwriting is when an underwriter agrees to buy his commitment of shares before the issue opens. The underwriter guarantees a fixed amount to the issuer from the issue. Thus, in case the shares are not subscribed by investors, the issue is devolved on underwriters and they have to bring in the amount by subscribing to the shares. The underwriter bears a risk which is much higher in soft underwriting.
Soft underwriting is when an underwriter agrees to buy the shares at stage after the issue is closed. He then, immediately places those shares with institutional players. The risk faced by the underwriter as such is reduced to a small window of time. Also, the soft underwriter has the option to invoke a force Majeure (acts of God) clause in case there are certain factors beyond the control that can affect the underwriter’s ability to place the shares with the buyers.
Open book/ closed book
In an open book building system the merchant banker along with the issuer ensures that the demand for the securities is displayed online on the website of the stock exchanges. Here, the investors can be guided by the movements of the bid during the period in which the bid is kept open, Indian book building process provides for an open book system. In the closed book building system, the book is not made public and the bidders will have to take a call on the price at which they intend to make a bid without having any information on the bids submitted by other bidders.