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Promoter’s Warrants Issue

In India it is very common for the promoters to sell substantial stake in the company when the price is right. Then immediately after that do a preferential allotment to themselves or kins and relatives.

Often this preferential allotment is made in form of warrants. Promoters, who subscribe to such warrants, are required to pay upfront only a small portion of the warrant issue size and pay the balance amount in 18 months. Promoters, in most cases, exercise the option of converting these warrants into shares only if the share price of the company is higher than the pre-fixed price of the equity warrant.

By law each and every investor is an equal partner in any company. So why were the common investors not allowed to subscribe to this issue?
The management of all Indian companies are always rewarded generously for their efforts. They are given huge salaries, bonus, perks and even stock options (ESOS) I am OK with that, but these warrants are embezzlements. They dilute the holdings of the common investors at a throw away price and wipe out all the profits which we had expected. What hurts me the most is that most people are oblivious to this malpractice.

One of the biggest problem faced by Indian stock market is that even though by law, the investors are an equal partner, in the promoter’s minds, it still belongs to him.

3 replies on “Promoter’s Warrants Issue”

u really thought that all was fair?

two types of criminal are always spared in this country
the political types and the big fraudulent businessmen
if the Essars can survive unscathed and consumer rights are never even talked about
this is a common practice which even the most reputed business families use effectively.

how do u think the finance act and Companies act is such a bulky document and why is the need for so many subsections/ explainations / rebates and loopholes?? and why are gifts to politicians and taxing the political parties never discussed

Confucius once roughly told the chinese king, that if u want to rid society of bribery and corruption – start being non corrupt urself.

this is not an egalitarian society and remember this
even ambani in 1982 busted the big bear cartel that had continually hammered his stock using funds from a certain foreign investor / entity surname shah registered somewhere in the isle of man with cos like Crocodile, Lota and Fiasco

remember the method the recent bull ketan parekh used?

//Confucius once roughly told the chinese king, that if u want to rid society of bribery and corruption – start being non corrupt urself. //
wow.. love this quote.

//u really thought that all was fair?//
i know things are not fair, but you cannot allow the promoters to openly fleece the public… right?

//how do u think the finance act is such a bulky document and why is the need
for so many subsections or rebates ??//
ya the more complicated the law is, the more is the chances of misinterpretation… and more bucks for the babus.

// and why are gifts to politicians and taxing the political parties never discussed//
http://enagar.com/2006/11/13/election-funds-corruption-in-indian-politics/
last year i had written an article on this very fact… a typical national party has a budget of over 400cr… and yet leave alone the taxation.. there not not even an iota of auditing.

//even ambani in 1982 busted the big bear cartel that had continually hammered his stock//
ya i remember crocodile… and worse they did that openly.. infact in that era any industrialist who did not manipulate his stock prices was not considered aggressive.

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