The Worth of a Warrant (5)

Warrant (5)

Why do companies issue warrants?

Warrants are often issued to investors together with debt securities (particularly bonds) in a package.

The warrants are detached from the bonds and traded separately.

Companies embarking on projects with long gestation periods normally opt to issue such packages.

Doing so enables them to raise capital initially from the sale of debt (bonds), and subsequently from the sale of the warrants near the expiry date.

The latter is timed to coincide with the time when the potential earnings of the project start materialising so that additional shares issued for the warrants would be supported by higher earnings