Global warrants: Overview, definition, and example
What are global warrants?
Global warrants are financial instruments that give their holders the right, but not the obligation, to buy or sell a specific quantity of underlying securities, such as shares or bonds, at a predetermined price (called the "exercise" or "strike price") before a certain expiration date. Unlike regular warrants, global warrants are often issued and tradable in multiple markets or countries, making them more accessible to international investors.
These warrants are typically issued by companies as part of a broader financial strategy, such as raising capital or providing an incentive for investment. The term "global" in this context refers to the warrants being available for trading across multiple jurisdictions, typically through international exchanges.
Why are global warrants important?
Global warrants are important because they provide investors with a flexible and potentially profitable way to participate in a company’s future growth or performance. For companies, global warrants can be a way to raise funds or attract international investors by offering the possibility of future equity participation at a favorable price.
For international investors, global warrants offer the opportunity to gain exposure to global markets without having to navigate the complexities of investing directly in foreign securities. They are also used in strategic financing or corporate restructuring to offer investors potential upside in the form of equity ownership or other financial benefits.
Understanding global warrants through an example
Imagine a company, Company A, based in the United States, wants to raise capital to fund a new project. To do so, it issues global warrants that are linked to the company's common stock. These warrants are priced at $50 each, allowing the holder to purchase one share of Company A's stock for $50 within a specified period (say, 5 years).
These global warrants are listed on multiple international exchanges, such as the New York Stock Exchange (NYSE) and the London Stock Exchange (LSE), making them available to a global pool of investors. An investor in the United Kingdom, for example, buys the global warrants through the LSE. Over time, if the stock price of Company A increases to $75, the investor can exercise the warrants and purchase the shares for $50 each, thereby making a profit by selling them at market value ($75). However, if the stock price does not rise above the strike price, the investor may choose not to exercise the warrant.
Example of a global warrants clause
Here’s how a clause related to global warrants might appear in a financial agreement or offering document:
"The Company hereby grants the holders of the Global Warrants the right to purchase one (1) share of the Company's common stock at an exercise price of $50 per share. The Warrants are exercisable at any time during the period of five (5) years from the issuance date. The Warrants are tradable on the New York Stock Exchange and the London Stock Exchange, and are subject to the terms and conditions outlined in the Warrant Agreement.”
Conclusion
Global warrants are a type of financial instrument that provides the holder with the right to purchase or sell underlying securities in multiple international markets. They offer flexibility for both companies and investors by allowing for international participation and providing potential upside in the form of equity.
For companies, global warrants are a tool for raising capital or incentivizing investment. For investors, they represent an opportunity to participate in global markets with the added potential for significant financial gains. Understanding how global warrants work and their benefits can help investors and businesses effectively use them as part of their financial strategies.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.