What is Preferential Equity allotment?
What is Preferential Equity Allotment?
Preferential Allotment is when a company sells shares at a lower price to a chosen group of investors and raises funds by issuing new shares to a specific group of people. In another way, these investors are current shareholders, strategic partners, preferred investors, or preferences.
The QIP allows an Indian company to raise money from local markets without needing to show any documents to market authorities beforehand.
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Purpose of Preferential Equity Allotment
It is done by companies to secure:-
- funding for growth
- By forming strategic partnerships, company can have more confidence in raising money, and the process will be smoother and easier.
Lets explain you the preferential allotment procedure:
On June 11th, 2023, Balu Forge Industries Limited Board of Directors granted approval for the issuance of 1.4 crore preferential allotment of equity shares offering, to non-promoters. The issuance price was set at INR 115 per share, resulting in a total value of INR 158 crore.
The company’s rationale for the issuance included two main objectives:
- To purchase and installation of new and existing plant and Machinery: INR 110 crore
- For expansion plans and working capital requirement – INR 9 Crores
- To serve general corporate purposes:- INR 39 crores
The preferential share allotment were issued at a discount of approximately 28% to 30%,
High Net Worth Individuals (HNIs) often invest in such offerings as they are usually aimed at fostering a new phase of growth for the company.
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Preferential Allotment By Listed Company
Here’s the snapshot of the recent preferential allotment done by listed company?
| Sl NO | Name of the Proposed Allotee | Pre-issue Holding | No, of shares to be issued | Post Issue category | Total Amount (INR Cr) |
| 1 | Ashish Kacholia | 0.00% | 21,65,500 | 2.16% | 25 |
| 2 | Bengal Finance and Investment Private Ltd | 0.00% | 21,65,500 | 2.16% | 25 |
| 3 | Sage one Flagship growth fund | 0.00% | 18,00,000 | 1.80% | 20.7 |
| 4 | Vanja Sundar Iyer | 0.00% | 18,00,000 | 1.80% | 20.7 |
| 5 | Others | 0.00% | 57,96,000 | 5.79% | 66.6 |
Total Amounts raised = INR 158 Cr against the issue of 1,37,27,000 shares.
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