Malaysia Warrants News

The price of LB Aluminium Berhad warrant (LBALUM-WA) had not been able to rise due to persistent sale of the warrant by one of its major shareholders.   According to announcement to Bursa Malaysia, Ms. Leow Sok Hoon, a major shareholder and director of the company, had disposed almost all her warrants holdings at a price range of 1.5 sen to 2 sen between 22/2/10 and 15/3/10.

The announcement was only made to the Exchange on 31st March 2010, one day after the company announced its latest quarterly results.  It should be noted that the sale of warrants occured during the closed period prior to the company's earnings announcements.  There was no announcements of the intention to deal in the company's securities before the sale of warrants during closed period. 

It appears that sale of warrants by directors and major shareholders needed no announcement to the Exchange as warrants are not shares and does not affect the shareholding structure of the company.  Nevertheless, it is a good practice to disclose such disposals.

With the sale of almost all of major shareholders' warrants, it is quite certain that they would be no "extension" of the warrant by way of rights issue or restricted issue.  LBALUM-WA expires in a little more than two months.  If the share price does not rise to above 66 sen by then, the warrant will expire out-of-money.  Punters who bought the warrant in anticipation of any such play may be disappointed now unless some investors decide to load up the warrants and exercise to become substantial shareholder of the company.

Redtone International has completed its rights issue of ICULS (Redtone-LA) together with free warrants (Redtone-WA).    After listing, Redtone-WA has traded in a narrow range of between 9 sen and 11.5 sen although the bulk of the transactions is done at between 9.5 sen to 11 sen.  Redtone-LA has traded at a slight discount upon listing but now the discount has disappeared due to the mother share price coming down.  Redtone-WA looks to be more resilient and its appeal is higher for speculator despite its high premium compared to Redtone-LA.

Redtone announced on 22nd March that its subsidiary, Redtone Technology Sdn. Bhd. is in discussion to acquire a company listed in OTCBB United States through an injection of Redtone China operation.  

Since the company is announcing this potential acquisition before signing of a definitive agreement, does that mean that a play is probably under way?

Director and substantial shareholder of Octagon Consolidated Berhad, Siti Fatimah Binti Mohd. Shariff, has been progressively selling down Octagon-WA in small quantity over the last few months.  Due to the illiquid and quiet nature of Octagon-WA, Siti Fatimah had to resort to selling in quantities of 50,000 each time.  The latest announcement today indicated that Siti Fatimah had again disposed 50,000 warrants each day on 18/3/2010 and 19/3/2010 respectively, paring down her warrants holdings to 7.451 million units..  Although the quantity is not much, it does indicate the fact that this warrant may not have much upside.  The exercise price of Octagon-WA is RM1.28.  With the mother share currently trading at 22.5 sen and the company net asset per share at 69.75 sen, it is difficult to be optimistic on the warrant’s prospect even though the expiry is still more than two years to go.  At this level, investors who are still bullish on Octagon may be better off investing the mother share directly.

The shares and warrants of Fitters Diversifies Berhad (Fitters) became active recently following the company sale of all its treasury shares at between 63sen and 65 sen on March 11^th 2010 according to Bursa Malaysia announcements.

Fitters-WA hardly attracted investors’ interest before that.  Since the issuance of 65.6 million Fitters-WA at the end of November 2007, the trading volume of Fitters-WA is almost negligible.  This warrant was issued via Rights Issue to shareholders of the company at 10 sen per warrant.

Before the sale of Fitters’ 5.11 million treasury shares, there had not been many days where the trading volume of Fitters is above 1 million shares.  It is therefore reasonable to assume that the sale of treasury shares is likely to have been pre-planned.

Fitters is not alone in managing the sale of its treasury shares, companies like Mtouche and Century Logistics had indeed sold some treasury shares ahead of the ex-date of respective companies’ rights issue.  This is reasonable considering the fact that such treasury shares were not entitled for the rights issues.

Another company which had sold treasury shares on the way up is SEG International.  The company began selling its 620 million treasury shares last December at above 90 sen.  After the company sold the last block of its treasury shares at RM1.31, the share price of the company share continues to go up.  It is trading at about RM1.60 now.

Some of these sales of treasury shares must have been pre-planned.  The assumption is that the sale of the treasury shares of such normally quiet counters could not have happen naturally.  If such sales were planned, the shares must have gone to the hand of strategic investors.  It is also not unreasonable to assume that such strategic investors aim further upside for the companies' share price. 

So, is the sale of Fitters treasury shares a prelude to some exciting time ahead?  If you buy the argument above, then the company share warrants closer monitoring.  And Fitters-WA provides a cheaper entry to the mother share.