I’m a 3rd year BA LLB student from a pvt uni. The profs are shit and don’t teach us anything. Can anyone working in a GC/PE-VC/CM team please explain the difference between private placement and preferential allotment in the simplest manner. Google is confusing me even more. TIA.
Preferential allotment is issuance of fresh shares by a company. It’s called a preferential allotment since shares are issued either to an existing shareholder or to third parties in “preference” to all other existing shareholders. When shares in issue are offered to all existing shareholders, it’s called a rights issue. When an existing shareholder sells shares that it already holds, it’s called a ‘secondary sale’.
Private placement is when shares are offered to a pre-identified investor or group or investors. This is different from a public issue when shares are offered to public at large. A preferential allotment can be by way of a private placement or public issue.
All seems correct here except that at least in India there is no way of having a preferential allotment vide a public issue (or any way of segregating selected members of public who can then apply for a public issue).
If you are not offering shares to all the existing shareholders, all such issuance can only happen by way of Private Placement.
Preferential Allotment is a sub-set of Private Placement, and is applicable, only if the securities being offered are convertible into equity.
So, all Preferential Allotment is Private Placement, but not all Private Placement is Preferential Allotment.
For instance, whilst issuance of CCD could attract preferential allotment norms, issuance of NCD would not. But in both cases of CCD and NCD, compliance with Private Placement to be followed.
In other words, all issuance of securities (which are not open to all) would be Private Placement. Further, depending upon whether the security is convertible, Preferential Allotment principles would follow.
Private placement is when shares are offered to a pre-identified investor or group or investors. This is different from a public issue when shares are offered to public at large. A preferential allotment can be by way of a private placement or public issue.
Preferential Allotment is a sub-set of Private Placement, and is applicable, only if the securities being offered are convertible into equity.
So, all Preferential Allotment is Private Placement, but not all Private Placement is Preferential Allotment.
For instance, whilst issuance of CCD could attract preferential allotment norms, issuance of NCD would not. But in both cases of CCD and NCD, compliance with Private Placement to be followed.
In other words, all issuance of securities (which are not open to all) would be Private Placement. Further, depending upon whether the security is convertible, Preferential Allotment principles would follow.