Lock-in on warrants will start when shares are allotted
SEBI has amended the lock-in period on shares allotted on conversion of warrants. Now the lock-in will start when the shares are allotted and not when warrants are allotted, as earlier.
By Ravi Ananthanarayanan, ET Bureau |
SEBI is clamping down on equity warrants, making it difficult for promoters to make a fast buck off them. It has amended the lock-in period on shares allotted on conversion of warrants. Now the lock-in will start when the shares are allotted and not when warrants are allotted, as earlier.
It means promoters will have to wait longer before they can sell such shares. Equity warrants are used by promoters to increase their stake at a future date. They can be used as a poison pill to ward off hostile takeovers since they can be converted any time.
Their structure also makes them preferable to a plain vanilla preferential allotment issue. For one, promoters have to fork out only 10% of the total amount at the time of allotment, the rest on exercising the option. They also get an 18-month window for exercising the option.
Most importantly, the price on conversion of warrants to equity is fixed in the beginning. So, even if the prevailing share price is much higher than the conversion price, the promoter pays a lesser amount.
And, if the share is trading at a significant discount, the promoter can let the options lapse and get a fresh round of warrants, or even equity shares allocated, based on the prevailing market price. All he loses is the upfront margin money.
ADVERTISEMENT
To perhaps plug any scope of misuse, Sebi has amended the DIP guidelines with respect to the lock-in period. Preferential issue of shares are subject to a three-year lock-in for promoters and one year for others. Now, the guidelines had a clause which stated that for convertible equity warrants, the lock-in period will be reduced to the extent that the instruments have already been locked in. So, apart from the aforementioned advantages, if warrants are converted after 18 months on shares, the residual lock-in is only 18 more months to complete three years.
Hence, promoters could encash their shares much earlier. Now they will have to wait for full three years, ensuring that warrants are not used to make unjust gains.
Download
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
