Stabilisation, Greenshoe and Aftermarket Support

The 30-day stabilisation period following a Hong Kong IPO is a structured process designed to support the share price if it falls below the offer price. The stabilising manager (usually the lead sponsor or bookrunner) has the authority to buy shares in the market at or below the offer price. These purchases are funded by the greenshoe option: the stabilising manager has sold up to 15% more shares than the base deal size, and can cover this short position either by buying shares in the market (if the price falls) or by exercising the greenshoe option to buy additional shares from the issuer at the offer price (if the price rises). The stabilisation mechanism creates an asymmetric outcome: if the stock trades up, the issuer and selling shareholders receive additional proceeds from the exercised greenshoe; if the stock trades down, the stabilising manager’s purchases provide price support that cushions the decline. The stabilisation period ends 30 days after listing, at which point the stock must trade on its own fundamentals. Companies often see increased volatility at day 31 as the stabilisation bid is removed.