BASIC DEFINITIONS

Warrants: These are financial instruments that give the holder the right, but not the obligation, to purchase a company’s equity shares at a fixed price within a specified period (typically 18 months in India). They are like call options but issued directly by the company.

Preferential Issue: This is a private placement of securities (shares, warrants, or other instruments) to a specific group of investors, such as promoters, institutional investors, or high-net-worth individuals, rather than the general public. It’s governed by SEBI’s Issue of Capital and Disclosure Requirements (ICDR) Regulations, 2018.

WHAT?

A preferential issue of warrants is a method used by companies in India to raise capital by issuing convertible warrants to a select group of investors on a preferential basis, rather than through a public offering. In short this is a method by which a company raises money by issuing warrants which can be later converted into shares.

This financial instrument allows companies to secure funds while providing investors the option to convert the warrants into equity shares at a predetermined price and time in the future. Recently Reliance Jio has announced the allocation of 50 crore warrants at ₹316.50 to the promoter family, raising nearly ₹15,000 crore. 
 

Key Features of Preferential Issue of Warrants

1. Eligibility: Investors can include promoters, promoter groups, strategic investors, or institutions (e.g., venture capital funds, foreign portfolio investors). SEBI restricts the number of allottees to 200 per issue (excluding certain institutional investors).
2. Pricing: The exercise price of warrants is set as per SEBI guidelines, typically based on the higher of: The average of the weekly high and low of the stock’s closing price over the 26 weeks or 2 weeks preceding the relevant date.
3. Payment Structure: Investors pay an upfront amount (at least 25% of the warrant price) upon allotment, with the balance due upon exercising the warrant for equity shares within 18 months. If not exercised, the warrants lapse, and the upfront payment is typically forfeited.
4. Lock-in Period: Shares issued upon conversion are subject to a lock-in period (e.g., 3 years for promoters, 1 year for non-promoters), restricting their sale to ensure market stability.
5. Regulatory Approvals: Requires shareholder approval via a special resolution and compliance with SEBI ICDR Regulations, Companies Act, 2013, and stock exchange norms.
6. Once warrants are converted into equity shares, they are held in dematerialized (demat) form in depositories like NSDL, which ensures secure storage, transfer, and settlement of these securities. 

Why Companies Opt for Preferential Issue of Warrants?

1. Faster Capital Raising: Unlike public issues, preferential issues are quicker, less costly, and involve fewer regulatory hurdles, making them ideal for urgent funding needs (e.g., debt repayment, expansion, or working capital).
2. Targeted Investors: Companies can strategically select investors (e.g., promoters to increase stake or institutions for credibility) without diluting control immediately.
3. Flexibility for Investors: Warrants allow investors to defer full payment and assess the company’s performance before converting to shares, reducing risk.
4. Capital Infusion in Phases: The upfront payment provides immediate funds, while conversion later brings additional capital, aiding long-term planning.

EXAMPLES

1. Adani Enterprises (2023): Issued warrants worth ₹12,500 crore to promoters and select investors to fund green energy and infrastructure projects, showcasing the use of warrants for strategic expansion.
2. Tata Motors (2021-2023): Raised funds through preferential issues to strengthen its balance sheet, with warrants convertible within 18 months, supporting its electric vehicle push.
3. Reliance JIO (2025)