Bearish market forces promoters to cancel warrants

With stock prices having yielded considerable ground in the last three to four months, promoters are cancelling warrants that they issued or planned to issue to themselves at prices way above the current market price.

In the last ten days, at least two companies have intimated the stock exchanges that they are not going ahead with the subscription to the warrants as proposed. In the process they will save themselves some money.

The Delhi-based multiplex operator PVR (2005-06 revenues Rs 107.43 crore) has informed the Bombay Stock Exchange that the company has decided to withdraw its proposal to raise funds through the issue and allotment of 12 lakh warrants of Rs 10 each at a premium of Rs 230.20 to Bijli Investment.

The current market price of PVR is around Rs 167-170. The proposal for warrants was approved by the board and shareholders on October 31, 2006, and January 25, 2007, respectively, and at that time, the price of the PVR share was around Rs 255-256.

Had they subscribed to the warrants at that price, the promoters would have been notionally poorer by about Rs 7-8 crore.

Punj Lloyd, a Rs 1,684 crore engineering firm, has told the BSE that the "proposed allottees of the warrants, in terms of shareholders' resolution dated March 6, 2007, have not subscribed to the warrants within the period stipulated under the Sebi guidelines. Accordingly, the company is not proceeding with the allotment of warrants." The number of warrants to be issued to promoters was a maximum of 80,00,000. Punj Lloyd currently trades at Rs 825, but was ruling at around Rs 1,030 in early February when the allotment was planned. Thus the company saved more than Rs 200 a warrant.

According to sources, Punj Lloyd had been planning a placement to qualified institutional buyers (QIBs) and it wanted to simultaneously subscribe to warrants. However, sources say the issue did not find takers at the then proposed price of Rs 1,020, which was based on the Sebi formula of the average of the last two weeks or six months, whichever is higher. Having failed to mop up money from institutional buyers, the company, it is understood, decided not to subscribe to the warrants. Says a senior merchant banker, "With the trend in the markets uncertain and companies not able to raise resources from institutions at an attractive premium, they are desisting from subscribing to warrants."

Warrants are instruments for which an initial payment of 10 per cent is payable by listed companies, according to the Sebi guidelines, and which are converted into equity shares once the allottees pay up the full amount.

The conversion has to be made in a maximum period of 18 months. Otherwise, the initial 10 per cent payment gets forfeited.