Board meets on 2nd Sept 2009. Resolves to issue UPTO (why?) 14.4 lac warrants - each convertible to 1 share. Record date is backdated to 1st Aug 2009 (why is this allowed?). This date is used for calculating price according to SEBI's minimum pricing formula. The price so arrived at is Rs 44.
Now on 20th Nov 2009, the warrant allotment is done and I believe (correct me if I am wrong?) the 25% amount is paid only now.
But the price remains Rs 44, while the stock price by now is close to Rs 80. Note that the Rs 44 price is not mentioned in any of the NSE/BSE announcements.
Now what would have happened if the stock had gone down? Say to Rs 20. Would the promoters still buy or take advantage of the UPTO word and buy only token amount?
Should not the SEBI's minimum pricing formula be applied to the date on which 25% (as per SEBI rule) payment is made rather than the record date mentioned above? This appears like a big misuse to me. Effectively getting an option to buy warrants at a past price carried over for 4 months at NIL cost.
And this is no small amount of shares. Its ~10% of the present equity.
Disclaimer: I may be buying/selling/holding any of the shares I talk about in this blog anytime. Do your own due diligence.
Friday, December 11, 2009
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I had left a comment on Ashish's blog (http://investshoppe.blogspot.com/2009/12/investment-ideas-for-2010.html) about Kale Promoter warrants. The answer he gave is:
ReplyDelete"I agree with your observation that issue of warrants to the promoters at Rs 44 was against the broad interests of the minority shareholders. We have taken up this concern in our discussions with the management also. While this act can certainly not be overlooked yet it is not a violation of any SEBI or other security regulations. Moreover, it is a regular practice in our corporate world. Though on many occasions such as this one it is not fair to investors yet it is fairly prevalent. I agree with your observation that the promoters effectively got an option to subscribe more shares at an extremely low price and this option would probably have not been exercised had the markets and the share price of this company remained at those abysmal low levels. Regulators should look into such practices which compromise shareholder interests and come up with suitable changes in the regulations for preferential issue of shares and warrants to promoters.
On the positive side this is an act of reassurance from the minority shareholders’ point of view. Any promoter committing money to increase his stake lends confidence to the future business prospects. Nevertheless, a rights issue or buy back of shares would have been a more desirable way of increasing promoter’s stake and giving all shareholders an equal and fair opportunity.
In conclusion, I would say that this act would go down as a sign of investor unfriendliness but still does not take away the great future growth potential of the company. The company’s shares have moved up smartly over the last couple of weeks but still offer good scope of generating returns in the near future."
I agree with the points he make. Sadly, this is the state of affairs in Indian Equity Market -allowing misuse of Promoter Warrants.
Proters do more harm to themselves by such short term thinking than they realise. To become truly great in business you need to be above suspicion.
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