Convertible Warrant

A convertible warrant is an option that allows the buyer to partially or fully convert the alloted warrants into an equivalent number of equity shares of the company within a specified time period. Preferential allotment of convertible warrants is a private placement of warrants to a select group of persons who may or may not belong to the promoter group. SEBI has come up with certain guidelines for preferential allotment of warrants. These guidlines have to be strictly followed by any company which goes for preferential allotment. Need for convertible warrants ----------------------------i)From the company's perspective : Every company requires cash for its operation, expansion plans and M&A. When a company needs a large amount of money in a short duration, private placement of warrants is a good option. ii)From the Warrant Buyer's perspective : Convertible warrants allow the buyer to earn a fixed rate of return without the risk of capital loss due to a fall in the stock price of the company. The buyer can also earn profits by exercising the option to convert the warrants to equity shares if the stock price of the company appreciates. What it means to the shareholders of the company -----------------------------------------------Advantages : It is a good sign if promoters go for convertible warrants at a price higher than the market price. It reassures the shareholders that the promoters have faith in the company. Also, the company can grow at a faster pace because of the funds received. This will lead to a gain for the shareholders in the form of stock price appreciation of the company. Disadvantages : The equity capital of a company increases when warrants are exercised and converted to equity shares. This leads to a dilution in EPS(Earnings

20.each.58. 10/.21%.00.57/.57/.000 shares will be added to the already existing 2.57 Rs.(Rupees Two Crore Fifty Eight Lacs Twenty Thousand Four Hundred only) being 10% of the total price consideration for 12. ii)An additional 12. 2.each at a price of Rs 215. promoters may try to accumulate more and more shares of the company to consolidated their hold on the company.000 warrants calculated at the rate of Rs. The shareholders need to look at the price at which the warrants are issued and the extent of equity dilution.30. .Per Share) for the shareholders of the company. Example ------Pvr Limited has informed the Exchange that pursuant to shareholders approval obtained for the issue of 12.870 if the warrants are exercised thus diluting the equity by 5. SEBI's guidelines for preferential allotment -------------------------------------------1)Preferential allotment of equity shares can be made at a price which is not lower than the higher of the following: i)The average of the weekly high and low of the closing prices of the shares during 130 trading days preceding the relevant date.000 warrants convertible into one equity share of Rs.400/.00. ii)The average of the weekly high and low of the closing prices of the shares during 10 trading days preceding the relevant date. Points to Note: i) Warrants issued at price of 215.00. Priya Exhibitors Private Limited has paid Rs. Also. when the market price was 179. The Warrants have since been allotted to the said allottees on preferential basis. 215.13.per share.

Relevant date means the date 30 days prior to the date on which the meeting of the general body of the shareholders was held to consider the proposed issue. 4)Preferential allotment cannot be made to the promoters/non-promoters if they have sold the equity shares of the company during a period of six months prior to the relevant date. 2000} . the lock-in is 1 year. References: ----------i)CHAPTER XIII OF SEBI (DISCLOSURE AND INVESTOR PROTECTION) GUIDELINES. 2)Not less than 10% of the price shall be payable at the time of allotment of warrant. 3)Preferential allotment to promoters is subject to a lock-in of 3 years from the date of allotment and for non-promoters.