What is a preferential allotment? A plain guide
What is a preferential allotment? It is when a listed company issues new shares or convertible securities to a select group of identified investors on a private placement basis, rather than offering them to the public. It runs under Chapter V of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, and it requires shareholders to pass a special resolution first.
Definition
A preferential allotment
is a private placement in which a listed company issues shares or convertible securities to a select group of identified investors, not the public. It is governed by Chapter V of the SEBI ICDR Regulations, 2018, needs a special resolution, and the allottees face a lock-in. Source: SEBI ICDR Regulations, 2018.
How is a preferential allotment priced?
Pricing is set by a SEBI formula, not by a free negotiation. For a share that is frequently traded, the floor price is the higher of two volume-weighted averages.
90 and 10 days
Floor price for a frequently traded share is the higher of the 90-trading-day and 10-trading-day VWAP
Source: SEBI ICDR Regulations, 2018, pricing norms effective 14 January 2022
A share counts as frequently traded when the shares traded over the preceding 240 trading days are at least 10% of the total number of shares. For such a share, the floor price is the higher of the volume-weighted average price over the last 90 trading days and over the last 10 trading days. These pricing norms took effect on 14 January 2022. In certain cases, such as a change of control or an allotment above 5% of post-issue capital, a registered valuer's report is also required.
What approvals and lock-in apply?
A preferential allotment needs a special resolution, meaning at least 75% of votes cast must be in favour. Once approved, the shares carry a lock-in. Under SEBI ICDR Regulation 167, the minimum lock-in is one year, and shares allotted to the promoter or promoter group are locked in for longer. The lock-in is designed to stop short-term flipping and to align allottees with the company. Because new shares enter the register, a preferential allotment changes the shareholding pattern once complete.
How is it different from other capital routes?
A preferential allotment is one of several ways a listed company can raise fresh capital. It differs from a QIP, which sells only to qualified institutional buyers, and from an offer for sale, where existing holders sell rather than the company issuing new shares. A rights issue offers shares to existing shareholders in proportion to their holdings. The distinguishing feature of a preferential allotment is that the company picks the specific investors.
How to track a preferential allotment
Every preferential allotment leaves a dated public trail. The board resolution, the notice for the special resolution, and the final allotment are all disclosed to the stock exchanges. Reading those disclosures tells you who was allotted shares, at what price, and how the promoter and institutional holdings shifted as a result. Flock reads these public disclosures and keeps each one dated and source-linked. What a preferential allotment means for your own decision is your call to make.
Frequently asked questions
What is a preferential allotment?
A preferential allotment is a private placement in which a listed company issues shares or convertible securities to a select group of identified investors, rather than to the public. It runs under Chapter V of the SEBI ICDR Regulations, 2018, and needs a special resolution. Source: SEBI ICDR Regulations, 2018.
How is a preferential allotment priced?
For a frequently traded share, the floor price is the higher of the volume-weighted average price over the preceding 90 trading days and over the preceding 10 trading days, per the pricing norms effective 14 January 2022. Source: SEBI ICDR Regulations, 2018.
Is there a lock-in on preferential allotment shares?
Yes. Shares issued through a preferential allotment carry a lock-in of at least one year under SEBI ICDR Regulation 167, and allotments to promoters or the promoter group carry a longer lock-in. The rule discourages quick exits. Source: SEBI ICDR Regulations, 2018.
How long does a company have to complete the allotment?
Under SEBI ICDR Regulation 170, the allotment must be completed within 15 days of the special resolution. If a regulatory approval is pending, the 15 days run from that approval; otherwise the company must pass a fresh resolution. Source: SEBI ICDR Regulations, 2018.
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Disclosures shown are public regulatory filings. Data may be delayed or incomplete. Smart-money entities may no longer hold positions shown. Not investment advice.