Preferential allotment of warrants 81 (1a)

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

16 March 2012 Dear Team

Kindly suggest for below case:

A co. made a Pref Issue 81(1A) of warrants at
Issue Price - RS.100/-, FV- Rs. 10/- & Prem of Rs. 90/- before a year but now Market Price of the Share is Rs 20/- so the Allottees are not willing to pay balance 75% amount.

Now what recourse the Co. has to sustain the allottees instead of Forfeiting the warrants.

Ajay Mishra

Ajay Mishra (Expert)
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16 March 2012 Hi

In that case, after the expiry of 18 months from the allotment of warrants the company will forfeit the 25% upfront money and the company can utilise the same amount for business of the company.After 18 months if the allottee request for allottment, in that case too he will be not eligible to convert shares.

Regards

Querist : Anonymous

Querist : Anonymous (Querist)

17 March 2012 Dear Team,

Is there any way of repricing the shares as the rate of the same is very cheap in the secondary market and the allottees being the Promoter of the Co. can be protected from losing their 25% amount which is Rs.25/- more than the current market price of the shares.

If possible Please suggest the name of any of the Co.in which such thing has happened as the same situation seems to be very practical.

Ajay Mishra

Ajay Mishra (Expert)
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17 March 2012 Hi

No, there is no way of protecting 25% upfront money if you are not taking shares. The Company has mandatory option to forfeit upfront money. Read the following Regulation 77 of SEBI (ICDR) Regulation, 2009:

Payment of consideration.
77. (1) Full consideration of specified securities other than warrants issued under this Chapter shall be paid by the allottees at the time of allotment of such specified securities:

Provided that in case of a preferential issue of specified securities pursuant to a scheme of corporate debt restructuring as per the corporate debt restructuring framework specified by the Reserve Bank of India, the allottee may pay the consideration in terms of such scheme.
(2) An amount equivalent to at least twenty five per cent. of the consideration determined in terms of regulation 76 shall be paid against each warrant on the date of allotment of warrants.
(3) The balance seventy five per cent. of the consideration shall be paid at the time of allotment of equity shares pursuant to exercise of option against each such warrant by the warrant holder.
(4) In case the warrant holder does not exercise the option to take equity shares against any of the warrants held by him, the consideration paid in respect of such warrant in terms of sub-regulation (2) shall be forfeited by the issuer.

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