Sale of Preference Shares

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Shailesh Chuahan (Querist)
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21 November 2008 I want to sale the preference shares subscribed by me to other. Now my question is
1) Can I sale preference share before redemption to others?

2) How to arrive at Valuation of preference shares ?

3) Can I value the preference share on Net Asset Value ?

Please give your opinion and back it up with some legal sections to rely on?

Ravikumar.G

Ravikumar.G (Expert)
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21 November 2008 These are valued on yield basis in a going concern. Compared to Equity shares, the rate of return in preference shares would be, generally lower because of greater safety.

Ravikumar.G

Ravikumar.G (Expert)
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21 November 2008 A valuer must exercise his own judgement in valuing preference shares, because of the diminishing real value of the fixed preference dividend. This is considered to be a handicap for sellers in an inflationary economy. The yield based valuation of PS would hold good only if :

1) the dividend on the share has been paid regularly and it is reasonably expected that it would continue to be paid;

2) that investment is adjusted by the criteria that the total assets of the concern are equal to 4 or 5 times the p.capital.

Ravikumar.G

Ravikumar.G (Expert)
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21 November 2008 P.S may have certain additional rights, for ex the right to get an additional share of profits or the right to get the share converted into equity shares at a certain rate. The right to get an additional share of profit will probably increase the market value of the share depending upon the size of the total profit and the conditions under which the additional dividend will come to preference share holders. Total yield per share will have to be worked out and on that basis the market value will be ascertained by the formula :

Total yield per share / Normal rate of yield *100

Shailesh Chuahan

Shailesh Chuahan (Querist)
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22 November 2008 1) So this mean I can sell the preference share.

2) 6% cummulative redeemable preference shares, and since the company is running into losses the dividend is not paid so far.

Please guide about valuation

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