What are warrants? - Accounts and Finance for Managers

These are nothing but Bearer documents which are title to buy the specified number of equity shares at specified price during the future period. The life period of the warrants are normally too long.

The warrants are normally issued by the company only in order to attract the issue of fixed bearing securities viz preference shares and debentures.

The following are the various type of warrants:

  • Detachable warrants: Warrants which are issued along with the host securities; detachable
  • Puttable warrants: The warrants issued are sold back to company before expiry date
  • Naked warrants: Warrants issued without any host securities

Advantages of the warrants

  • Making other host securities more attractive
  • It facilitates the companies to stand on its own leg and reduces the rate to depend on the intermediaries
  • The exercise of the warrants only during the future period which fosters better planning for the company
  • Lower cost of debt due to greater attraction towards warrants - denominated in terms of equity shares - which are at later date
  • Warrants are highly liquid which means they are traded in the Stock Exchanges provided the warrants should not be exercised.

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