Monday, August 10, 2009

The first Put Warrant issued

AmInvestment Bank issued the first Put Warrant ('PW') in Bursa last week. The underlying instrument for this PW is the stock of HKEX, the equivalent of Bursa Malaysia for the Hong Kong stock exchange.

The calculation of the premium for PW & CW is as:


PS- Ex Price stands for Exercise Price & Ex Ratio stands for Exercise Ratio.

Applying this formula, the HKEX-H1 would have a exorbitant premium of 40%. To make sense of this number, try to imagine that you want to have an option to sell HKEX at HK$143.90 (the exercise price) for a period up to Feb 4, 2011. You need to pay a price for this option (PW), which is derived from the current PW price multiplied by the PW's exercise ratio [or, RM0.21 x 125]. The net proceed will be the exercise price less the cost the option (PW) [or, HK$143.90-(RM0.21 x 125)]. Based on Friday's closing price for HKEX of HK$142.40, the HKEX-H1 premium for 1 unit of HKEX is arrived as follows HK$142.40 - [HK$143.90-(RM0.21 x 125)]. You may convert that into percentage term by dividing it with the current HKEX price & multiplying with 100.

I don't think it is advisable to buy HKEX-H1 at the present price.
at

3 comments:

  1. lofan73Monday, August 10, 2009 2:58:00 PM

    hi alex,

    i need ur advice...there are right-issues for boustead coming soon. what is the difference between to buy it now or hve to wait for the trading on the right-issues?is it ok to buy now or later?

    ReplyDelete
  2. Alex LuMonday, August 10, 2009 5:41:00 PM

    Hi Lofan,

    Whether you buy a stock ahead of an entitlement or after the entitlement has passed depends on the current price trend & what's the entitlement. The price trend for Boustead is sideway, which means that the near-term prospect for the stock is not exciting. The market is also not too keen on this Rights Issue.

    For the benefit of other readers, Boustead is having a renounceable rights issue of up to 260,412,729 new ordinary shares of RM0.50 each at an issue price of RM2.80 per rights share on the basis of two (2) rights shares for every five (5) existing shares held on 17 august 2009.

    Since the outlook for this stock is very tame, you can take a chance & wait for the Rights to be traded. Sometime, an "arbitrage" situation may arise whereby some shareholders choose to sell off their Rights entitlement which may create a discount between the market price of the share & the total cost of acquiring the share via an acquisition of Rights to be followed by Rights subscription. When this arbitrage situation arose- other shareholders may join in to sell their shares & buy the Rights instead- the share price can drop for a few days to an attractive level. You can then buy either the share or the Rights. If you choose the latter (for cost-effectiveness), then you would have to proceed to subscribe for the Rights.

    ReplyDelete
  3. lofan73Monday, August 10, 2009 5:55:00 PM

    tq alex for the explaination.i will wait n c then

    ReplyDelete