Roughly one third of 26 companies that issued warrants in January 2010 have not converted these warrants into shares even after the 18-month window, stipulated by markets regulator Securities and Exchange Board of India (Sebi), expired in June 2011. January 2010 saw the most number of companies go in for warrant issues in the whole of the calender year.
Companies issue preferential warrants for two reasons. One, it allows promoters to bring in the necessary capital to grow their business over 18 months and second, to increase stake much cheaper as they anticipate higher share prices, reflecting the companys growth.
The current price is much lower than that of conversion price, said Dipen Shah, head, fundamental research at domestic brokerage Kotak Securities. Hence, some of the promoters are not willing to convert their warrants into shares by paying the required amount.
Electronic products maker MIC Electronics, Filatex India, IOL Chemicals, Sylph Techno, Compuage Info and Mold Tek Pack are some of the companies who didnt convert warrants to shares within the stipulated period.
Promoters of MIC Electronics did not convert 60 lakh warrants to shares after it announced its plan in January 2010 to raise R27.3 crore by converting 60 lakh warrants at R47.45. On October 24, 2011, the companys shares were trading at R9.05 or one fifth the issue price. Compuage Info did not convert 18 lakh warrants to raise R12.06 crore at R67 as against the trading price of R89 on October 24.
Owing to the market conditions, the warrant holder may not be having liquidity to opt for conversion, said Kishor P Ostwal, CMD at CNI Research, a firm that analyses mid and small-cap shares for investors.
At the same time, some companies converted warrants to shares much before the 18-month window. Textile man made fibre maker Century Enka converted 8 lakh warrants on January 27, 2010 and after four months converted the rest 10 lakh on May 3, 2010. The share price have fallen by 49.6% to R148 from the issued trading price of R293.55.
Similarly, Winsome Yarns converted 125 lakh warrants within the stipulated period. The share price of the company increased significantly from R1.91 on January 11, 2010 to R22.60 on October 24, 2011.
DK Aggarwal, chairman and managing director, SMC Investments & Advisors, feels that the outlook of the market is very positive and the convertible warrants would be attractive to investors. Though this is right in part, many of the warrants today are worthless because of the lower share prices of the issuer companies, he said. But since now the stock market is trading at its very low multiple and further downslide is limited, any issue with convertible warrants attached to it would be attractive, he added.