The call price is either at or above the exercise price of the underlying instrument. If the call price is equal to the exercise price, investors will not receive any cash amount. If the call price is different from the exercise price, cash settlement will be done based on an established formula.
Personally, I don't like this feature called MCE. If the underlying security is rising and consequently the CBLC is also going in favor of the holders of CBLC, the issuer can cut short a winning hand by calling in the CBLC. In view of this feature, CBLCs should not attract high premium like CWs or normal company-issued warrants. A fair premium for CBLCs could be about 3-5%.
Table: CBLC Valuation Table as at July 16, 2010
9 comments:
Dedending on the call price. If far from underlying shares price, the premium can be higher. But I agreed with you, generally it should not trade at a high premium and callable only favour the issuer. I have have listed down a lot on callable bull bear certificates in my blog.
politemarket.blogspot.com.
It is a very risky products.
Hi Alex..
Is it a good time to buy TopGlove at 7.22 after the bonus issue? Tq
Hi Alex,
Pls comment on UEMLAND,is that a good time to entry?
Hi All,
Correct me if I am wrong, I think the CIMB (issue) can make a lot of money. .when that is a bear market :D
yes, the unit holder can make a lot of money when the underlying share are increase and vice versa.
The disadvantages for this CBLC is when the price of the underlying share hit the call-able price, meaning the invesotr will only get a few cen.. . perhaps issue looking from another angle- downside protection . . .
Hi Polite Market,
Thanks for sharing.
Hi Mirai E Mukatte
It's hard to tell when is a good time to buy TopGlove. The stock had a sharp run-up before it went 'ex' for a 1-for-1 bonus. We need to see whether the result for the next (or, current) quarter is an improvement over its results for QE31/5/2010 where its net profit dropped by 10% q-o-q due to higher latex cost & unfavorable forex movement.
Hi Pan
UEMLAND looks set for an upside breakout at RM1.60-62. It may happen at any moment. Keep an eye on it for the next few days.
The play on UEMLand coincides with the decision of Singapore government to encourage greater participation in the Iskandar area, where the bulk of UEMland land is located.
Hi Ivan,
Like Call Warrants (CWs), CBLCs will generate a one-time premium for the issuer. For the buyers, the upside return is hard to estimate. HKEX-C1 was listed at 63.5 sen and went to a high of more than RM7.00. A buyer of HKEX-C1 can see its true potential because there was no Mandatory Call Event ('MCE'). On the other hand, if you have been holding onto a CBLC on HKEX, the issuer would just exercise its option to call back the CBLC. You won't lose anything but then again you won't make much. If you are happy with that kind of arrangement, go ahead. You should however pay a much smaller premium for CBLC when compared to the premium payable on a CW.
See my earlier post on HKEX-C1- http://nexttrade.blogspot.com/2007/06/hkex-c1-to-benefit-from-hkexs-bullish.html
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