Question

why would a company be inclined to issue warrants?

Answer 1

Warrant  : It is a certificate where lender has the right to buy equity in the future at excercised price in the quantity stated. Warrants can make large profits for the holder if the price of the stock is much higher than the price at which the warrant is held.

Companies are inclined to issue warrants:

• When the warrant holder excercise the right, the number of ordinary shares increases and hence the stock liquidity in the market increases.
• Warrangts can expand the investors as one who are investing in ordinary shares can be different from the ones who are buying the warrants.
• The excercise period if specified on the warrants can help the company obtain the funds needed as and when needed.It leads to optimization of capital and maintenance of debt equity ratio.
• If the warrants are issued along with other financial instruments, the cost of funding of financial instruments offered can be reduced.