advantages to the investorsthe warrant acts as a

Question

Advantages to the Investors:

1. The warrant acts as a sweetener and ensures a better subscription to the NCDs, especially for companies with good track record. NCDs with warrant option may also be offered to the investors with offer for buy-back, so that the investors are required to retain only the equity warrant and are not required to retain the NCD.
2. NCD with warrant is preferred by many investors because they can expect steady rate of return and capital appreciation on the NCD and can also obtain capital appreciation by subscribing to the equity shares on exercise of the warrant option.
3. Warrants confer a high degree of leverage to the investor. The investor has the option to sell the warrant in the market, subscribe to equity shares by surrendering the warrant and paying the exercise price or allowing the warrant to lapse.
4. Warrants are listed and are traded independently on the stock exchanges. The investor has the option to dispose off the warrant before the right to allotment of equity shares becomes exercisable. However, in practice, warrants have very limited liquidity in India.
5. The investor limits his downside risk to the amount paid for the warrants, but the upside potential of capital appreciation in the event of favorable price movements is large.
6. Warrants are highly geared instruments with tremendous potential for capital appreciation and are attractive speculative tools for investors.