Allan explained that ZA-OSKSB actually stands for OSK Big 20 Basket Warrant. This basket warrant is "a tracker certificate (which is) another form of securitized derivative which belongs to the same family as covered warrant. As the exercise price of (this basket) warrant is close to zero (actually, it is a negligible 1 sen), this is no different than just buying the underlying share."
Based on the closing price as at September 13, 2006, 10 lots of ZA-OSKB [or 1000 units] is theoretically worth about RM1,013. This amount will yield a gross dividend of about RM45.85 or net dividend of RM24.76. Net dividend is arrived at by deducting 28% tax and thereafter 25% service charges levied by the management. See the table below.
While 10 lots of ZA-OSKSB [or 1000 units] is theoretically worth about RM1,013, the market is valuing it at RM900 only. This represent a discount of 11.2% to the theoretical value. In addition, these 10 lots of ZA-OSKSB [or 1000 units] would yield a net dividend of RM24.76, giving a fairly decent dividend yield of 2.75%.
Some believe that ZA-OSKSB is trading at a big discount because of its current mode of exercise. This warrant can only be exercised at the expiry date. OSK had proposed to modify the mode of exercise whereby this warrant can be exercised on a number of pre-determined occasions. In the article, it was stated that "the Securities Commission has already approved its application to modify the style of exercise and would be informing its warrant holders at a later date".
I believe that the immediate effect of this modification exercise is the narrowing of the discount that the market asks for owning ZA-OSKSB. Even if this warrant does not trade at a discount, it is still a very interesting investment instrument that allows the holder to invest in a diversified portfolio of the top 20 blue chips in Malaysia at a very small upfront cost.
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