Friday, April 06, 2007

Bursa Must Put A Stop To This Malicious Activity
Silly Conversion Ratios

The Mumbling Priest said...
Used to tell people that CWs have their death certificates written the moment they're born... many don't care. Everyday, you lose time value, both in terms of interest (carry) & especially the possibility of the mother going up. Do the issuers make a lot from CS biz? I guess they make enough to pay some bills. But if you're thinking whether they are making from the ridiculous market prices, it depends on whether they have any left after the placements. Oh, did anyone notice the trend for 10:1 CWs? hahahaha cheaper per unit but bloody ridiculously over-priced all-in. Some
people just don't get it! That's why CIMB is following OSK's tracks. Beware!


Let's see if we are just as starry-eyed now, with the listing of 3 new covereds. Public Bank-CC: issue price 11 sen, conversion ratio 10-to-1, conversion price 8.90, current price 9.10, current mother share price 9.10, current PBB-CC price 24 sen (high of 30 sen), maturity 23/9/2007
Premium = 2.40 + 8.90 / 9.10 = 24% (quite acceptable). Gearing = 9.10/2.40 = 3.8x (much better). In comparison, PBB-CB has now FINALLY dropped to what I considered as fair value predicted 3 days ago. PPB-CA is a much better exposure at 57-60 sen, premium of less than 8% and a very good gearing at nearly 8x, maturity 30/8/2007.

YTL-CC: issue price 8.5 sen, conversion ratio 10-to-1, conversion price 7.50, current mother share price 7.20, current YTL-CC price 21 sen (high of 25.5 sen), maturity 23/9/2007
Premium = 2.10 + 7.50 / 7.20 = 33% (still a tad expensive). Gearing = 7.20/2.10 = 3.4x (acceptable). Both YTL-CB and CC should go towards 17-18 sen. YTL-CA is a much better exposure at 54-57 sen, premium of less than 10% and a very good gearing at more than 6x, maturing 28/2/2007.

Tenaga-CE: issue price 8.5 sen, conversion ratio 10-to-1, conversion price 11.80, current mother share price 11.70 , current Tenaga-CE price 25 sen (high 33 sen), similar maturity as above
Premium = 2.50 + 11.80 / 11.70 = 24.7%. Gearing = 11.70/2.50 = 4.7x. Good gearing but Tenaga-CD is a much better bet at 46-48 sen, premium less than 8% and gearing of nearly 10x.

All shows that the recently issued covered traded too expensively and the 3 new ones today, while better priced than those listed on Monday, is still a tad expensive.

Bursa should put a stop to this nonsense by CIMB (of all people, maybe the options are making them do crazy stuff) with the deluge of covereds having these 10 into one conversion ratios. The ONLY REASON for them doing this is to jack up interest by issuing at absolute low prices e.g. 8.5 sen 11 sen, what else can the reason be? If you can sell a covered at 11 sen, you can still sell the same thing at RM1.10 (1-to-1 conversion) or even 55 sen (5-to-1). If investors cannot afford RM1.00 instruments, should they be playing those 11 sen instruments even? Since investors can buy 100 shares now and not the minimum 1,000 lots before, where's the logic of doing 10-to-1. If you allow that, why not 20 to 1 or 40 to 1, ... then I can issue at 3 sen... hah... sure cannot fail now!!! The INTENTION is near criminal ... issue at 10 to 1 la... the dumb public would buy even more, they don't know how to calculate premiums and gearing (I can hear the execs lauging to the bank when they should be laughing to the SC for interrogation). If there is no ill-intent, why do 10 to one, PLEASE ANSWER!!! I would even advise Bursa and SC to step in to check if the placements are done properly and not into "inside accounts" prior to the listing. I can take 2 to 1 or even 4 to one. Bursa, please put a stop to this ridiculous tactic by the issuing houses, it will only hurt retail players. Just have a look at the amount of money lost on those 3 covereds issued on Monday, and we are supposedly near our all time highs. Bursa, you have to step in to protect those that need to be protected (i.e. not the big boys). I know, my friend, Yus-baby has came out to warn investors that they need to be aware of what they are getting into when buying covered warrants. That's all good, but a disclaimer is insufficient and does not absolve Bursa from acting further, you and I know the huge retail market is composed of investors with various levels of investing sophistication - you have to also help reduce those "misdirected intentions" of the big boys.

6 comments:

Meng said...

Thank you Dali for highlighting this issue. I will warn my friends and relatives about this. God bless you.

KC said...

the bursa has created another casino for the retail player ! The big broking house is the sure winner

dummy said...

I have no doubt you are the greatest in this cruel corporate world. May I wish you happiness, good health, well-being.

cin said...

"...CWs have their death certificates written the moment they're born... " - How true is the statement, yet how many of the small investors are aware of it.

Playing the the CWs is no less sinful than gambling.

Dali, I salute you for asking Bursa to put a stop to this nonsense.

The Mumbling Priest said...

Aiyah, they're just capitalizing on the mentality of the retailers lah. Cheaper mah. Here's my analogy ... remember the govt was trying to stop the sale of small sized cigarettes? Hell, it's more affordable, isn't it? btw, can you still buy small sized packs? or god forbid, the sale of ciggies by the stick hahahahaha 100:1 CWs

D said...

Thank you salvatore for writting about warrants in your past few postings. It has provided me with quite an insight on the warrants in KLSE. I haven't been able to find much info about them online.