Call Warrants vs Warrant

A warrant is issued by a company for the purpose of raising capital. Warrants usually carry a longer maturity, varying from 3 years to 10 years. However, a call warrant is issued by third party financial institutions on shares of an unrelated company or shares of a basket of companies, with a much shorter maturity period. These kinds of call warrants are not very popular in countries like India, but acceptable to investors in some other markets.

Types of Warrants

Warrants and call warrants are subdivided into two classes based on their style to exercise such a right for conversion to equity shares. – either American or European.

An American warrant can be exercised at any time up to its maturity, while a European warrant can only be exercised at its maturity date.

When an investor exercises his rights for a company’s warrant, the company issues new shares to the holder of warrants who exercises such a right when market conditions are favourable, to meet its obligations, which lead to dilution of share capital.

For a call warrant, the issuer meets its obligation using outstanding shares. If the warrants or call warrants are not exercised on expiry, they do not carry any worth and the liability of the company lapses after the maturity date.