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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.
The shareholders need to look at the price at which the warrants are issued and the
extent of equity dilution.
Example
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Pvr Limited has informed the Exchange that pursuant to shareholders approval
obtained for the issue of 12,00,000 warrants convertible into one equity share of
Rs. 10/- each at a price of Rs 215.57/- per share, Priya Exhibitors Private Limited
has paid Rs. 2,58,20,400/- (Rupees Two Crore Fifty Eight Lacs Twenty Thousand
Four Hundred only) being 10% of the total price consideration for 12,00,000
warrants calculated at the rate of Rs. 215.57/- each. The Warrants have since been
allotted to the said allottees on preferential basis.
Points to Note:
i) Warrants issued at price of 215.57 Rs. when the market price was 179.
ii)An additional 12,00,000 shares will be added to the already existing 2,30,13,870
if the warrants are exercised thus diluting the equity by 5.21%.
2)Not less than 10% of the price shall be payable at the time of allotment of
warrant.
References:
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i)CHAPTER XIII OF SEBI
(DISCLOSURE AND INVESTOR PROTECTION) GUIDELINES, 2000}