Glossarytaught in E11.04, M0.02
Preferential allotment
Also called preferential issue.
An issue of shares to a specific, identified group of investors rather than to the market.
Preferential allotment is legitimate and widely used for bringing in a strategic partner or for promoters injecting capital. It's also the route through which control can shift, or through which shares can be issued to connected parties at a formula price that demand never tested.
Warrants issued preferentially deserve a closer look. SEBI's rules require at least 25% of the price upfront and conversion within 18 months, which gives the holder an option on the share price for a quarter of the cost, paid for by other shareholders' dilution. Verify the current text of the rules before relying on a figure.
Read who received the shares, and at what price relative to the market.
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