Companies which had announced such issues in November are: Alok Textile Industries, Bengal Tea & Fabric, Bharat Gears, Kaytee Cotsynth, Kwality Diary, Mysore Cements, Saurashtra Cements, Tamil Nadu Hospitals and Welspun India. In December, ACC, SYP Agro Foods, Oswal Agro Mills, Supreme Petrochem and Shree Manufacturing Company announced their plans for preferential issue to promoters. ``Over two dozens companies have finalised plans for preferential issue of shares/warrants to promoters in the next one or two months,'' said a merchant banker.

It makes sense for promoters to go for preferential shares as share prices are currently ruling at rock-bottom levels. The promoter can acquire shares ofhis company at very low rates. ``For common investors, it is not a good trend. Their holding in companies is getting diluted. This will push down share prices also. However, there is a plus point... in preferential offers, the entire money is going to the company whereas in creeping acquisition route, money is going into the stock markets and not to the company,'' merchant bankers said. Seeing the sudden ``enthusiasm'' being shown by companies in preferential offers, financial institutions have also started getting tough. Indian Organic Chemical's proposed preferential allotment of 30.27 lakh equity shares to promoters was dropped as FIs failed to give their approval before the expiry of stipulated three months. Cabot India also dropped its plan to make preferential allotment to its promoters.

Institutions have also opposed the proposal of ACC to make preferential offer to the Tatas. What has worried the FIs is the fact that the latest ACC issue is being made at Rs 1,100 per share whereas ACC's previousrights issue in 1995 was at Rs 4,000 per share. ``The Tatas are hiking the stake in ACC at a very low rate. Their cost of acquisition now works out to only Rs 99 crore. In 1995 it would have cost them Rs 360 crore,'' said an institutional source.

However, the largest issue is being proposed by the Oswals. Oswal Agro Mills has proposed to issue and allot 14 crore equity shares of Rs 10 each at a premium of Rs 25 per share aggregating Rs 490 crore on preferential basis to the promoters. Saurashtra Cement of the Mehtas, which was facing a takeover threat from the Autoriders group, is making a Rs 100 crore preferential issue while Welspun India is offering warrants worth Rs 30 crore to promoters. The Mehtas have made a quiet board resolution for a preferential allotment to foreign partners FL Smidth and Industrialisation Fund a combined stake equal to their own in the company to scuttle the takeover threat.

Some companies are looking at preferential offers as a route to raise resources for completion ofongoing projects. This is because companies are not keen to go for public or rights issues in view of the dull capital market scenario. New public issues barely averaged one or two every month in the last six months. Supreme Petrochem has decided to issue 150 lakh equity shares of Rs 10 each for cash to the promoters to part-finance the expansion project of the company. Merchant bankers feel the time is ripe for promoters to increase their stake in their companies through preferential allotments and acquisition of shares (upto five per cent of the equity capital) from the capital market through the creeping acquisition route.

Going by the track record of Indian companies in showing their herd mentality, chances are that more companies will jump onto the preferential brand-wagon soon. Market experts feel the institutions should not allow companies to misuse the preferential route to short-change the investors. On the other hand, institutions, which hold major stakes in companies, say they will adopt acase-by-case approach in such issues. It may be recalled that a host of multinationals had increased their stake in their Indian subsidiaries at a huge discount to their market prices two years ago. Investors are yet to get out of the shock treatment meted out by multinationals in the previous preferential saga.