Preferential allotment of warrants - better analysis needed

I just appeared on CNBC - and the show was about preferential allotment of warrants proposed by Hindalco and other companies. The managing director of IIAS a  proxy advisory firm was on the show to back his company's recommendation to shareholders of Hindalco to vote against the resolution. On hearing him, I understood the opposition of IIAS is rather mechanical and they would recommend voting against all preferential allotments of warrants and all preferential allotments in general. He also seemed to suggest that letting out of the money warrants expire was some sort of cheating. None of this logic is sound.

The law recognises preferential allotments to promoters.  And there is a rationale why preferential allotments (including of warrants) to promoters are not bad and are therefore permissible. First, preferential allotments are not dilutive - law mandates them  to be issued at or near the market price. By contrast, for a rights issue to succeed it must be at a deep discount to market price. Rights offerings would be dilutive of those who do not subscribe. All the more so - cases (as the MD of IIAS recommended) where a rights offering is under-written by the promoters would be the worst case scenario - as there would be substantial dilution and the promoter would substantially benefit to the extent they get the underwritten shares at a deep discount.

Second, for preferential allotment of warrants (a form  of call option) the law mandates a 25% down payment which would be forfeited in case the warrants are not exercised. That is a lot of money. In fact, this would be substantially more than the option value of the shares - showing substantial overpayment by the promoter - rather than some form of short changing by the promoters. I find the 25% down payment as a sign of promoter confidence in the company's stock - where the promoter is putting his money where his/her mouth is.

I would expect the proxy advisory firms to have a more nuanced and studied approach to preferential allotments rather than a dogmatic opposition. I would very much support an opposition to a preferential allotment of warrants based on a mathematical option pricing which shows that 25% is not sufficient down payment for a particular stock on a particular date. Sentences like this should be avoided by proxy advisory firms : "If you read the resolution pasted at the beginning of this article, it says “As it is permitted under existing regulations” – these regulations give promoters – the deepest insiders, a free ride on the equity for 18 long months. It’s time for SEBI to put an end to this.".

Update: I have received an email with the proxy recommendations of Ingovern which is also a proxy advisory firm and which also has an 'against' vote for the Hindalco preferential allotment of warrants. However, the recommendation is not mechanical and well argued. Having said that I still believe the promoters are overpaying (with a 25% down payment) for a call option to buy shares 18 months in the future and so conversely, the shareholders will gain. However, the opposition to the vote on the grounds of substantial increase in voting rights to promoters is a fair reason to oppose the vote. Attached is the Ingovern recommendation.