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Samudra-WA may get a boost from Debt Waiver

Kejuruteraan Samudra Timur Berhad (Samudra) recently completed its rights issues of warrants offered to shareholders on the basis of one warrant for two shares at a subscription price of 5 sen per new warrant.  The new warrant Samudra-WA started trading on 8 January 2013 and has remained in a tight range of between 7 to 8 sen.  At the time of writing, Samudra was last traded at 8 sen while the mother share was traded at 22 sen.

Why Company Warrants Are Still More Popular

There are more and more warrants being traded on Bursa Malaysia.  Listed companies are increasingly issuing warrants either on a standalone basis or as a sweetener for rights issue.  On the other hand, investment banks like CIMB, OSK etc. are also issuing an increasing number of structured warrants.  As at end of September 2010, there are 136 company warrants and 189 structured warrants listed on Bursa Malaysia.

SPSETIA Warrants – Which One?

The share price of SP Setia surged almost 7% last week as investors focused on the positive development of the property sector in Malaysia.  The warrants SPSETIA-WB and SPSETIA-CB both rose 25% in the past week, outperforming the mother share by three and a half times in percentage gain.

 

If investors are still bullish on SP Setia, which warrants should they consider?

 

Factors to consider when trading CBBC

Ever since CIMB Investment Bank launched CBBC (Callable Bull and Bear Contract) in Bursa Malaysia recently, Malaysian investors who bought these instruments on the first days of trading must have learnt some painful lessons.

 

Such lessons include buying CBBC with credit card like finance charge(as in GAMUDA-JA) and not realizing the automatic call feature upon triggering Mandatory Call Event (like in BJCORP-JA).

 

There are some factors investors should look at before deciding to buy CBBC.  The first thing they should look at is the call price of the instrument.  Call price is very important because when the share price touches the call price, the CBBC dies.  It is therefore important to select a CBBC with a call price that is some distance away from the current share price.  Another point to note is that contrary to warrants, high volatility is no good for CBBC.  Warrants buyers benefit from higher volatility because it increases the probability of the warrants being in-the-money.  The pricing of warrants is such that its price should be higher when there is a surge in volatility.

 

The opposite is however true for CBBC.  When volatility of share price increases, the probability of share price touching the call price increases, thereby triggering a Mandatory Call Event which will mean the end of the CBBC.  Investors should hence avoid buying CBBC if they anticipate a spike in volatility of the underlying asset.

 

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