A preferential allotment is when a company issues shares directly to a select group of investors such as promoters, institutions, or strategic partners at a fixed price. It is not open to all shareholders.
Companies use this route to raise capital quickly or bring in a specific investor without going through a public offering. The allotment price is regulated by SEBI and cannot be set arbitrarily it is based on the average market price over a specified period.
As an existing shareholder, you won’t receive anything in a preferential allotment but you will be affected. Since new shares are being issued, your ownership percentage in the company reduces slightly. This is called dilution.
The shares issued through preferential allotment also come with a lock-in period meaning the investors who received them cannot sell immediately. This is a SEBI requirement to prevent quick exits after allotment.
Easy & quick
Leave A Comment?