Tenaga Covered Warrant A&B

xatomic wrote: Hi Salvatore, I follow your blog quite often and always do admire your freespoken and candid views on the market and other interesting issues.I would appreciate your views on Tenaga now if you can do a write-up, especially the warrants coz I remember you wrote bout it before last time. Tenaga-CB seems to be trading at ridiculously low premium compared to its counterpart Tenaga-CA. At the current price relative to the mother share, the premium is only 5.7% compared to 18.6% for the latter.The expiry date difference is only 3 months and gearing is much higher, so why the difference in valuations? Is the market undervaluing the warrant now?

Tenaga-CA 28/1/08 Ex px RM7.96 Warrant px RM2.04
Tenaga-CB 19/10/07 Ex px RM4.54 Warrant px RM0.79

Tenaga-CA premium would be 2.04+7.96 divided by 10.00 = 0%
Tenaga-CB premium would be (2 x 0.79)+ (2 x 4.54) divided by 10.00 = 6.6%

So, in actual fact Tenaga-CB is costlier than Tenaga-CA. The crux being the CA is one warrant for one Tenaga share while the CB is two warrant to convert into one Tenaga share. So you would have to buy 2 CB warrant to get the same effect. In terms of gearing CA would get a gearing of 10.00/2.04 = 4.9x. For CB, the gearing should be calculated as 10.00/2 x 0.79 = 6.3x. CB has a higher gearing, CA has 3 months more till expiry, so in my assessment, both are fairly valued with CA being more a value proposition if one were to consider buying now as the premium is zilch.