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Why is UNISEM-CA Falling in Big Volume

Today UNISEM-CA is listed on Bursa Malaysia by issuer AmInvestment Bank and the warrant fell significantly from the issue price of 15 sen to about 13 sen at the time of writing on big volume.  Why is that so when Unisem share price is moving up?


The answer can be due to the fact that this structured warrant was issued at an issue price that is higher than the current implied price of new Unisem company warrant.  UNISEM-WR, the right to subscribe for Unisem new 5 year warrant with the same exercise price of UNISEM-CA, is now trading at about 42 sen.  UNISEM-CA, a structured warrant with the same exercise price and expires in March 2011 (tenure about 7 months), should not be worth more than the new unisem company warrant with a five year tenure.


UNISEM-CA has an exercise ratio of 4 to one.  This means that you need 4 warrants to entitle to exercise to one share whereas Unisem company warrant exercise ratio is one for one.  UNISEM-WR holder need to pay 10 sen to subscribe for new warrant so the implied price for the new warrant is about 52 sen.  With the issuance price of 15 sen, UNISEM-CA is equivalent to 60 sen adjusted for exercise ratio.  At 13 sen, adjusted price is 52 sen, which is the current implied value of Unisem new warrant.


So, the issuer just needs to buy the warrant rights and sell the structured warrant to make some easy profit.  Investors should take this into consideration when trading UNISEM-CA.


BJCORP-JA "Dies" on the 5th Day of Trading

BJCORP-JA has been suspended this afternoon as it has triggered a Mandatory Call Event (MCE).  This is due to the mother share price hitting the call price of RM1.06.  BJCORP-JA was heavily traded last Friday when it began trading with volume hitting above 10.8 million units.

For those investors who bought BJCORP-JA on the first day of listing without knowing what the instrument is, they will be shocked to find out that BJCORP-JA got suspended on the fifth day of trading or on T+4 after they bought the callable bull certificate.  It would be better had the investors not picked up and paid for BJCORP-JA.  Even if they were forced sold today, the investors would have got back a little more.

BJCORP-JA very close to being CALLED


BJCORP-JA could become the first Callable Bull Certificate (CBLC) to be called once the mother share price touches the call price of RM1.06. BJCORP share hit a low of RM1.08 today and any further weakness in the share price tomorrow can easily mark the end of trading of BJCORP-JA.


For CBLC, if the price of underlying instrument reaches the Call Price/Call Level at any time prior to the expiry date, the issuer will call the CBBC and trading of the CBBC will be suspended. This event is referred to as a Mandatory Call Event ("MCE"). The CBBC will expiry early and will be delisted on the 4th market day after the MCE.


GAMUDA-JA Finance Charge higher than Credit Card Rate


Callable Bull and Bear Contract (CBBC) made its debut on Bursa Malaysia 16th July 2010 with CIMB issuing four Callable Bull Contract (CBLC) on Air Asia, Berjaya Corporation, Gamuda and Genting. 


As with many new products in the past, these CBLCs were heavily traded on the first day of trading.  With very limited introduction of the products to the investing public and lack of up-to-date data and calculators in the issuer’s website, it is rather strange to see these CBLCs being so heavily traded.  Either investors do not understand the products (and treat it like normal warrants) or the market maker is not doing a good job in ensuring CBLCs prices tracking the underlying shares’ performance.


Unlike call warrants, CBLCs are always in-the-money by design. It also has another feature known as a mandatory call event.  Essentially, buying CBLCs is like buying shares on margin with an automatic cut loss process once the mother share hit the call price.  To understand CBBC more, please read my previous article on CBBC written in 2008.


The price of a CBLC comprises of an intrinsic value and finance charge (as opposed to time value for warrants).  Let’s use GAMUDA-JA, the most heavily traded CBLC on 16th July to illustrate some concepts of this instrument.


At the close of 16th July trading, the price of GAMUDA and GAMUDA-JA were RM3.36 and RM0.24 respectively.  GAMUDA-JA has an exercise price of RM2.55 and exercise ratio of 5.  Based on the closing price of GAMUDA-JA of RM0.24, the intrinsic value and finance charge are RM0.162 and RM0.078 respectively (refer to table below).  According to CIMB term sheet on GAMUDA-JA, the initial funding cost (represented in %) was 6.32% per annum.  CIMB had used this funding rate to determine the issue price of RM0.15 for GAMUDA-JA based on the mother share price of RM3.18 on price fixing date.


Expiring WYNN-C1 Trading at Slight Discount

The share price performance of Macao casino operator Wynn Macao Limited, which made its debut in Hong Kong Stock Exchange last October, has been spectacular.  The price of Wynn is now 22% higher than the closing price of its first day of HKD10.78.  


WYNN-C1 is a structured call warrant issued by CIMB last year on the first day the underlying share got listed.  WYNN-C1 closed at 25 sen on 9th October 2009, the day it first listed.  The warrant was then traded at a whopping implied volatility of 118% and a premium of 35.6%.


Had an investor bought into WYNN-C1 when it was first traded, there was no chance he could have made any money unless he disposed the warrant on the same day.  Investors of the underlying share also went through a rough patch when Wynn traded as low as HKD8.67 in late October last year.  Nevertheless, the share managed to pick itself up following better than expected earnings and is up 39% in 2010 as Macao gambling business enjoyed strong growth this year in the absence of any new supply (of casinos).


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