Novelis Inc, the US subsidiary of Hindalco Industries has postponed its IPO due to the prevailing market conditions. They said they would look for a better time to list Novelis Inc.

Through the IPO, the company was planning to raise between $810 million and $945 million by offering shares priced between $18 and $21 per share.

With the green shoe option available to the US primary market investors, the net proceeds from Novelis IPO were estimated to be between $931.5 million and $1.08 million.

What is green shoe option?

When a company decides to go public and sell its shares to the public for the first time is called Initial public offering or IPO, & they hire a group of financial experts called underwriters to help manage the sale.

The Green Shoe Option is a special arrangement between the company and the underwriters. Here’s how it works:

1. Extra Shares for High Demand: If lots of people want to buy the company’s shares and demand is higher than expected, the underwriters can sell up to 15% more shares than originally planned. This helps make sure everyone who wants to buy shares can get them.
2. Price Stability: If the share price starts to drop after the IPO, the underwriters can buy back some of those extra shares at the original offer price to help support the share price. This means they can stabilize the price without losing money because they buy back at the same price they sold them.
3. No Risk for Underwriters: The underwriters don’t have to risk their own money to stabilize the stock price. They can buy back the shares using the proceeds from the extra shares they sold.

In short, the Green Shoe Option is a tool that helps manage high demand for shares and stabilizes the share price after an IPO, making it smoother and more controlled for both the company and the investors.

In what business is Novelis Inc. involved?

Novelis Inc is a producer of flat-rolled aluminum products and a recycler of aluminum. The company has state-of-the-art can sheet production lines and recycling centers in North America, South America, Europe and Asia². Novelis has clients like Coca-Cola, Crown, Ball Corporation, Ardagh Group and ABInBev .

Who are the existing Shareholders selling shares in the IPO ?

AV Minerals (Netherlands) NV, which is another subsidiary of Hindalco Industries is about to sell its shares in the IPO. AV Minerals is the sole shareholder of Novalis and has planned to offload around 45 million shares. After the IPO, Hindalco would have retained 92.5% ownership of Novelis (holding 555 million shares).

Novelis is currently valued at up to $12.6 billion. Hindalco acquired Novelis in 2007 for $6 billion. According to the latest filing, with a net debt of $4.35 billion, the enterprise value of Novelis is estimated to be between $15.2 billion and $17 billion.

It is to be noted that this IPO was anticipated to be the largest ever by an Indian company in the US.

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