In the past six months, more than 100 companies have issued convertible warrants or made preferential allotments to promoters, considered a sign of optimism among these shareholders about the outlook of their businesses and share valuations.
On Monday, RPSG Ventures allotted 35.75 lakh shares at ₹795 per share on a preferential basis by way of private placement basis to promoters. The stock was trading at ₹718 on Monday.
In February, Fineotex Chemical issued 42 lakh shares to promoters at ₹346 a piece to raise ₹145 crores. Adani Green Energy had also raised ₹2,338 crore in January through a private placement of warrants to promoter entity Ardour Investment Holding. In November, Bajaj Finance issued 15.5 lakh warrants to Bajaj Finserv for a total of ₹1,189 crore. The warrants issued were at a premium of 2.65% from the company’s closing price on November1, 2023.
“Favourable market conditions may be incentivising promoters to opt for convertible warrants due to their adaptable payment structures,” said Antu Thomas, an analyst at Geojit Financial Services. “This arrangement has the potential to bolster investor confidence in the long-term growth prospects of the company’s stock.”
Some of the other companies that issued shares on a preferential basis to promoters include Oriental Rail, Master Trust, DCB Bank, Peninsula Land, JTL Industries, Taneja Aerospace, and Ganesha Ecosphere, among others. Promoters’ investments through the preferential route give a positive signal to investors about the outlook of these companies, said bankers.”With companies showing good performance and investing in capacity expansion, many promoters are looking to hike their stake through a preferential issue,” said Ravi Sardana, an investment banker.
“This enables them to lock in the purchase price and bring in funds to the company while the warrant route allows the induction of funds in a phased manner.”
Promoters of nearly a dozen companies, including Share India, Duroply Industries, Electrosteel Casting, Thomas Scott, and Parag Milk, among others, have converted their warrants into equity in the past three months.
In the case of preferential allotment, a combination of equity shares and convertible warrants is the most preferred route. While preferential allotment of shares requires the investor to bring in the money upfront, the issue of warrants allows staggered payments, usually over an 18-month time window. Typically, 25% is paid upfront, and the balance 75% upon exercising the conversion option, which will be within 18 months from the date of allotment.
Some market participants said a convertible warrant presents an alternative strategy for promoters to bolster their stakes in companies at a cheaper cost as the impact cost associated with purchasing shares from the secondary market is higher.
In 2020, market regulator Sebi amended the takeover norms to allow promoters to increase their stake by up to 10% through a preferential allotment.