There are n number of ways to cheat minority shareholders. Some of them are ugly but some have grey shade.

Edited by vipul - 15/Nov/2006 at 1:24pm

Basantji,

How to take up a promoter activity like preferential allotment of (5-6% of total no. of shares)warrants , to promoter grp company at a price which is almost 5% higher than the CMP of the stock with the promoter having a right to one equity share at expiry of 18 months?

Interesting thing here is that the current promoter holding shall almost double (increase by 75%) by this.

Is this another way of diluting equity (warrants shall be converted to shares )and promoters increasing their stake effortlessly?

How much importance should a shareholder give to such an activity?

Thank you basantji,
how many such warrants as a percentage of the total shareholder capital
can the promoters issue to themselves? Is there any upper limit? This can be a simple way of amassing huge wealth for the promoters. Issue warrants and latter sell stakes and do this again and again!

thank you basantji,

I got what you are saying....So essentially the promoters take a termed-bet on the company by issuing themselves warrants...so if the company does well in the next 4-6 quarters they shall en cash those warrants...and if the company doesn't do well, they have nothing to loose!

So basically all this talk of promoter stake being too low is not that solid. Because in the long run the promoters can anytime increase their stake through such means.

A company that is growing at say 60%-80% bottom line can always afford to dilute equity through by issuing warrants to the tune of 5-10% of the total shares almost every year...And yet the promoters can easily and slowly increase their stakes.

Good thing here is that the promoter is willing to take a bet by buying the call option.