Is Hindustan Copper's "Green Shoe" really a Green Shoe?

**SPEAKER_1** (0:00)
Hello folks, you're tuned in to Finshots Daily. If you're new here, welcome. If you're returning, welcome back. In today's episode, we simply explain what a green shoe option really is.
Before we head to the story, here's a quick word from Team Ditto. We're hosting a free two-day insurance masterclass that helps you build real financial security by understanding health and life insurance the right way. Right from understanding how to protect your family, choosing the right cover amount, and knowing what truly matters during a claim, to how hospitals process claims, the mistakes buyers usually make, and how to choose a policy that won't disappoint you when you need it the most. We will explain it all in plain language. Head to the link in the description and save your spot. Now to the story. Two days ago, the government announced that it would sell a 6% stake in Hindustan Copper. It initially planned to sell just 3% through an offer for sale or OFS, but demand from institutional investors was higher. They bid for 3.41 times the shares on offer. So, the government decided to sell another 3%, potentially raising nearly 3000 crore rupees. And if you read the exact post from the Secretary of the DIPAM, which is the Department of Investment and Public Asset Management, the secretary put out the statement on X, you will see what it says. The government has decided to exercise the entire green shoe option. Retail investors and employees get to bid on Wednesday, August 26th, 2026 Good luck. It's just a fancy way of saying that the government will sell more shares because demand is high. But here's the thing, the explanation we gave you isn't technically correct. Sure, the term may be used in conversations around share sales, but in capital markets, it has a much more specific meaning. Something entirely different, really. So what is it, you ask? In brief, a green shoe option is simply a provision that allows a company to sell additional shares during an IPO or their initial public offering. This helps stabilize the stock price once it's listed. If you're wondering how that works, let's go by how market regulator SEBI defines it in its ICDR regulations or the Issue of Capital and Disclosure Requirement Regulations. It says, when a company plans to go public, it can choose to use a green shoe option by getting shareholder approval before the IPO. It then appoints one of the lead managers as a stabilizing agent or an SA. For the uninitiated, a lead manager is someone like a merchant banker or an investment banker who helps the company manage and execute the entire IPO. If you've ever read an IPO prospectus, you'll usually find the list of lead managers somewhere in the first couple of pages. And the stabilizing agent, the SA, has one job. Try to prevent excessive falls in the stock price after listing. But how? Well, they start by borrowing additional shares from the company's existing shareholders. These borrowed shares can increase the number of shares sold in the IPO by up to 15% of the original issue size. Just to kind of give you an over-simplified example, if a company sells 100 shares in an IPO and has a green shoe option, the SA could effectively make up to 115 shares available for sale by borrowing 15 shares from existing shareholders, such as the company's promoters. That's because nobody can perfectly predict how a newly listed stock will behave once it starts trading freely. If demand is weaker than expected, the price could fall sharply in the first few days or weeks, which is where the extra shares come in. If the stock price falls, the SA can buy shares from the market using the money raised from the extra shares sold through the green shoe. These purchases create demand and can help support the stock price. The shares bought back are then returned to the shareholders from whom they were originally borrowed, the promoters in this case. This price support mechanism lasts for up to 30 days. If the SA can't buy enough shares from the market to return the borrowed shares, the company creates additional shares equivalent to the shortfall and issues them to original shareholders at the IPO price. Now, we know some of this can sound a little confusing, so let's make it simpler by continuing with the 115 share IPO example. Let's say investors buy all 115 shares at 100 rupees each, including the 15 shares borrowed from the promoter. The SA then watches the stock price after it lists. Suppose the price falls from 100 rupees to 90 rupees, the SA can then step in and buy the 15 shares from the market at 90 rupees or slightly higher and return them to the promoter. This sudden buying can help support the falling stock price while the promoters get back their 15 shares. But the stock isn't guaranteed to fall, right? It could stay at 100 rupees or it could even rise to 110 rupees. In that case, the SA won't buy shares because their job is to support the price when it falls. So let's say that during the stabilization period, the SA manages to buy only 10 of the 15 shares. Now there's a problem, a shortfall of 5 shares. That is where the company steps in and says, no problem, we will issue 5 shares at the original IPO price of 100 rupees and give them to the promoter. In other words, the company creates new shares to make up for the shares the SA couldn't buy back. And that, in a nutshell, is what a green shoe option actually means. TCS was the first Indian company to use one during its IPO back in 2004 But since then, relatively few Indian companies have opted for it, compared with companies in markets like the US. One reason is the way money is handled. In India, the money raised from the extra shares has to be kept in a separate account. And once the stabilization period ends, any leftover profit can't go to the SA or the promoters. It has to be transferred to SEBI's Investor Protection and Education Fund, or SEBI's IPEF. So, the SA only earns a fixed fee, regardless of the outcome. In the US, however, the SA can keep any profits from the price stabilization exercise. That helps explain why green shoe options remain relatively uncommon in India's mainboard IPO market. But you could say, Hey, Finshots, Hindustan Copper isn't conducting an IPO. It's been listed for decades. And you'd be right. The government, which is the majority promoter, is simply selling part of its stake. There's no SA, no share lending arrangement with promoters, and no 30-day post-listing stabilization window or buyback obligation if the stock falls. In fact, Hindustan Copper's business has been doing pretty well. In the latest quarter, Q1 of FY27, net profit jumped 163% year-on-year to 353 crore rupees, while revenue surged 81% to 936 crore rupees, helped by operational leverage and elevated global copper prices since the start of 2026