The Gaur family of Jaiprakash Associates can be best categorized as Daredevil promoters in Corporate India, since they went ahead and exercised the 10 million warrants out of the first tranche (of 50 million warrants) at Rs397 per share (more than 400% premium to current market price Rs 80). The promoters had already brought in Rs3.97 billion on 50 million warrants earlier this year, while the minimum they were required to bring in was Rs1.99 billion. The excess brought in has been adjusted against the exercise of the 10 million warrants resulting in the inflow into the company from the holding company of ~ Rs1.6 billion.
We believe that the warrant conversion is a statement by the promoters of their level of confidence in the company. The cash infusion also indicates that the promoters could, over the next 18 months, convert further warrants (40 million warrants at Rs397 convertible by July 2009 and 120 million warrants at Rs249 convertible by January 2010). Any inflow on this account should reduce market concerns on funding issues for Jaiprakash Associates.
JP Associates Research Note