New Covered Warrants
Genting-CD the new covered warrant went ballistic this morning to go from an issue price of 13 sen to a high of 43 sen on huge volume. Its issue price was just 13 sen, and you would need 50 ... repeat ... fifty of these to convert into ONE Genting share. The general public must learn quickly the importance of conversion ratio, and not just look at the very low absolute covered warrant price. Cry also no tears!!!
Assume mother share at RM40. You would be buying 50 x say 38 sen = RM19. RM19 plus you would then pay the conversion price of RM39 = RM58. Premium would be RM58/RM40 = 45%. Gearing would be RM40/RM19 = 2.1x
... my gawd, that is so unrealistic. The premium is high for a warrant maturing in 28th Sep 2007, but the worst thing is the gearing 2.1x. If mother share is at RM40, the fair value for this Genting-CD is only 20-22 sen, not anywhere near 40 sen!!! If you are really bullish on Genting, just buy Genting-CC or Genting-CB even, both have premiums of less than 15% and gearings of between 6-8x. Its like buying a Rolex at Sincere and a Rolex for RM200 at Petaling Street!