Promoters with preferential stock are short changing investors. As a small shareholder have you ever wondered, from the sidelines of course, how the company's promoters are enriching themselves with discounted shares in a bull market calling it ‘preferential allotment’? A recent study shows that Indian promoters are increasingly resorting to preferential allotments, with seven out of the 12 such allotments made in November this year. Preferential allotments made by Indian companies shot up 46 per cent since the equity market started moving up in April. Apparently, promoters are taking advantage of the bull run by offloading shares at ruling market prices (which are much higher) and going in for a preferential allotment at minimum price, as per the formula given in SEBI guidelines (which are lower than current market prices). As such, promoters are profiteering from the bull run and are also in a position to maintain their stake through preferential allotments made to themselves. The preferential allotment route is one of the most common methods exploited by the promoters to edge out small investors when the companies become profitable and start doing well on the stock markets. Some of the biggest corporates have taken this route to either increase promoters’ holding in the company or to reach the crucial stake-holding mark. Take for example, last month Pantaloon Retails sold shares to its promoters at Rs 112 a share which was a discount of 59 per cent to the then market price. Today the same share is quoted at Rs 274. As a small shareholder you don't have much option but to watch this pathetic display of greed and bad governance. You can , however, protest at the company's annual general meetings and write a complaint to the market regulator, Sebi. Sebi insiders say that a six-month ban on promoters selling shares prior to and after the preferential allotment of shares is now imminent. The faster Sebi comes out with these guidelines the better it is for the investing community.
