Tuesday, December 12, 2006


Jenting-Cover Your Belakang

Investors went nuts on the covered warrants, please let the math dictate your investing policies. Conversion for Jenting-Covered is 10 covered warrants to buy ONE Genting share.

Jenting-Covered price RM1.15
Conversion price RM25.54
Expiry May 2007
Mother share RM33.00

Premium = (10 x 1.15) + 25.54 / 33.00 = 12.2%
If the share trades at RM32.00, the premium swells to 15.7%

Gearing is the troubling thing here, usually covered warrants have excellent gearing to compensate for the short maturity period, hence you would find great leverage in the region of 8x or even 10x gearing. However in Jenting-C's case, the gearing is = 33.00/11.50 or just 2.8x. Do not be fooled by the low price of the covered warrant at RM1.15 as that is not the gearing. If you took RM1.15, the the gearing would look at a ridiculous 28x.

For gearing that is less than 3x with less than 6 months to maturity, it should trade very close to zero premium. That means the really FAIR value for the covered warrant is only between 85-95 sen and not anywhere above RM1.00. You have been warned.

3 comments:

simon_alibaba said...

comeon guys,

just let it go...... i am as wrong as you guys.

good luck to tan sri lim! this deal is paramount important to him than to us.

let see how he dvelop it?

Salvatore_Dali said...

ali,

do not take this to mean i don't want genting to get the project... i think its a coup and will actually strengthen m'sia-sing ties ... i even said those who bot the covered on friday deserved to get paid, however, the mother share looks shaky yesterday and today and even taking it at 33, the covered is way way overpriced... people need to know and appreciate the valuations ... whether it happens to be genting or not ... so it is not a slight on the lims, they have done very well for themselves and i think the london clubs purchase was even more significant ... btw... the snetosa thing was a pure joke and not to blast anyone ... lol

Salvatore_Dali said...

ali,

can u imagine if the name was belakang mari ...my that would have been a lot funnier