MUMBAI: Promoters and investors in 50 companies, who did not convert their warrants into shares to avoid losing money, have forfeited more than Rs 1,000 crore they paid at the time of allocation, according to data collated by ET.

Companies whose convertible warrants have lapsed include Hindalco, Tata Power, GE Shipping, Pantaloon Retail and Indiabulls Real Estate. These five companies alone accounted for Rs 412 crore of the total forfeited amount. But companies have little reason to worry, as the forfeited money goes into their reserves.

Warrants are a security that entitles the holder to buy stock of a company, which issued it at a specified price usually higher than the stock price at time of issue.

Market regulator SEBI has been trying to discourage the practice of promoters allotting warrants to themselves cheaply in a rising market, and then buying out, if share prices drop at the time of conversion.

The amount that investors need to pay at the time of allotment was recently raised from 10% to 25%, with the rest to be shelled out at the time of conversion into shares 18 months later.

Most of these 50-odd companies issued warrants in 2007, when share prices were ruling close to their peaks. Investors subscribed to the warrants in the hope that prices would continue climbing and push the conversion price below the market price.

But their hopes were shattered when the equity market crashed after January 2008. Share prices are now quoting at a steep discount to the conversion price, prompting promoters and other investors to let the warrants lapse, albeit at some cost.

“The loss to promoters is marginal, as they pay only 10% of the amount at the time of allotment. However, the company is benefited as the forfeited amount is added to its reserves,” said Prithvi Haldea, managing director of Delhi-based primary market research firm Prime Database.

Meanwhile, Indiabulls Real Estate tops the list of forfeited money with a sum of Rs 232 crore. In December, Tata Sons did not convert 1.03 crore warrants of Tata Power issued in July 2007, thus forfeiting about Rs 140 crore. Hindalco had issued 8 crore warrants to IGH Holdings for it was paid Rs 139 crore (Rs 17.39 per warrant). The warrants have not been converted, resulting in forfeiture of the investor’s initial contribution.

source: Economictimes

Tags: Hindalco, IGH, india companies, indiabulls, indian market, Promoters, stocks, Tata Sons

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