GoTo’s shares decline to IPO price, triggering greenshoe option

GoTo Group’s share price has declined to its initial offering price of 338 rupiah (around US$0.024), after rising almost 23% when it went public on April 11. This triggered the greenshoe option, allowing the company’s broker to buy back shares from the public.

In a filing with the Indonesia Stock Exchange, the appointed brokerage, PT CGS-CIMB Sekuritas Indonesia, stated that it bought 1.2 billion GoTo shares at an average price of 338 rupiah on April 20.

GoTo Group CEO Andre Soelistyo / Photo credit: GoTo Group

The greenshoe option is a mechanism which allows a brokerage, acting for its client, to purchase shares on the secondary market at an agreed price, thereby putting a floor under the share price.

So far, this seems to be working to stabilize prices. Since shares started trading in Jakarta this morning, GoTo’s shares have not fallen below 338 rupiah, giving the company a valuation of US$28 billion. The trend seems to have continued today, with the broker standing ready to sweep up shares from any public investor who wishes to bail out at the floor price.

See also: GoTo Group’s financial health in 4 charts

However, the greenshoe option is only a short-term solution. The terms of GoTo’s agreement with its broker limit such purchases to 6.1 billion shares, and this can only be done for a period of 30 days from the IPO. Yesterday’s purchases amount to 20% of the limit.

Once the broker has bought another 4.9 billion shares, there will be no more buffer to prevent share prices from falling further. The performance of the shares in the next couple of weeks will be crucial to determining if the floor can be maintained.

Currency converted from Indonesian rupiah to US dollar: US$1 = 14,351 rupiah.