Wednesday, September 05, 2007


Update On China Covered Warrants

These are volatile buggers and need to be monitored always. In the first few weeks when they were introduced, they were priced expensively and traded even more so. Somehow after the global tussle with subprime, almost all China covered warrants are cheaply traded (each warrant has an intrinsic value, usually priced in terms of its implied volatility and time value). Some are so ridiculously cheap, you'd think they are selling them at Petaling Street!

Company / Warrant Px / Premium / Gearing / Maturity

Category: Ridiculously Cheap Covered Warrants & Excellent China/HK Exposure

CCCC-C1 / 0.425 / 0% / 6x / 31 Jan 2008

CCCC-C3 / 0.115 / 8% / 15x / 4 Apr 2008

p/s CCCC-C3 is a lot better and cheaper as a buy & hold than C1

HKEX-C3 / 0.575 / 0% / 12x / 4 Apr 2008

HSBC-C1 / 0.155 / 7% / 40x / 4 Jan 2008

HSI-C1 / 0.40 / 0% / 24x / 29 Feb 2008

HWL-C1 / 0.275 / 7% / 13x 2 Jan 2008

Sinopec-C1 / 0.105 / 12% / 16x / 31 Jan 2008


Category: Cheap Covered Warrants & Good China/ HK Exposure

CNOOC-C1 / 0.105 / 15% / 6.7x / 25 Feb 2008

China Mobile-C4 / 0.40 / 4% / 6x / 28 Mar 2008

ICBC-C1 / 0.195 / 3% / 6x / 29 Feb 2008

ICBC-C3 / 0.18 / 0% / 6.5x / 2 Jan 2008

Petrochina-C1 / 0.185 / 8% / 6x / 29 Feb 2008

Petrochina-C3 / 0.165 / 7% / 6x / 17 Jan 2008

p/s Petrochina will be trading soon in Shanghai Exchange (within 2-6 weeks) and the IPO is priced close to the H-shares, I anticipate a jump of at least 40%-50% in the first few days of trading. This will spur buying of the H-share of Petrochina as well as its NYSE listing shares. Owing to the unique deliniation of investor pool - the Shanghai will trade at a huge premium to the H-share in HK, and you will find the NYSE trading at a discount to the H-share. The first 3-tiered share price for one single stock. Hence, for a strong speculative buy, the Petrochina covered warrants are the way to go.

Shenhua-C1 / 0.125 / 7% / 6.8x / 25 Feb 2008

24 comments:

edwin said...

Dali,

Why not CHMobil1? according to my calculations it is also trading at negative premium.

edwin said...

another thing is, when calculating gearing shouldn't the denominator (warrant price) also be converted into HKD first? Your calculations do not have this conversion.

fazzy said...

Dali,

When Petrochina move to Shanghai, will the warrant still be trading in KLSE?

geoff said...

CHMobil will also be listed on Shanghai very soon. And so is China Shenhua. In the past, when china companies went for IPO in Shanghai, the corresponding h shares went up in tandem. Most recently, we've seen China Cosco H shares went up a few notches after the Shanghai listing. Let's see if Petrochina will have similar fate. Good call, Dali.

edwin said...

what are the listing dates?

old news said chmobil in july but it hasn't happened.

Petrochina in Nov?

Salvatore_Dali said...

edwin,

china mobile -1 is also good but its gearing is only half of China-Mobile-4, that is significant enough... plus u cannot buy everything.

my calculations are done via CIMB's warrants digest, u can recheck them there.No idea on listing dates but soon.

fazzy,
yes petrochina will ahve 3 listings then ... the covered warrant on petrochina in Bursa tracks only the px of the H-shares in HK. So if the Shanghai price goes ballistic but the H-share does not budge, the covered warrant in Bursa would not move.

Yuen Wah said...

if i look at gearing hsbc c1 have 40x gearing, much better than the rest ... will this be the best bet?better than cccc-c3?

Windsurfer said...

Dali, how sure are u that Petrochina will be trading in Shanghai Exchange within 2-6 weeks time? can show us ur source ?

Salvatore_Dali said...

wind,

i read it somewhere from my daily readings of chinese papers n research (in english) ... i cannot recall the source... if the info is important for yr decision making, then forget i ever made that statement.

Windsurfer said...

aiyah... why like this ...

Salvatore_Dali said...

lol, windsurfer,

thats the problem of the web when people type, there is no inflection, I am not angry or mad at all...

I really don't remember the source, so if u r making an important investment decision based on the info, you be better off to forget what i said on the listing dat... that's all... all said in nice calm tone... no sacarsm...

Windsurfer said...

^_^

Windsurfer said...

could this be it ??

http://resources.alibaba.com/article/173492/PetroChina_s_October_Shanghai_listing.htm

Windsurfer said...

one more article in June saying listing earliest could be August... already Sep now... :p

http://finance.sina.com.cn/stock/y/20070621/07103710789.shtml

Windsurfer said...

Here's another kicker... actually the plan for PetroChina to list in Shanghai can be trace back to 2004!!! or longer !!! ^_^

http://news.xinhuanet.com/fortune/2004-10/22/content_2124196.htm

Windsurfer said...

PetroChina aims at Shanghai listing in November - http://uk.reuters.com/article/marketsNewsUS/idUKSHA9312920070712

Windsurfer said...

HK-listed PetroChina to list on mainland as early as October - report - http://www.forbes.com/markets/feeds/afx/2007/08/08/afx3997779.html

Salvatore_Dali said...

i think i read somewhere that they have SET the IPO px already, which lends more weight to a proper listing... i agree there have been many false sightings in the past, i guess if they set the IPO px, that's a significant move on probability

kafka said...

hi Dali,
can you please explain why a 15 percent cap that will apply to CH-Mobil in HK index weighting as part of a quarterly revision to the benchmark index, will cause Chmobil to close lower recently?

Salvatore_Dali said...

u have a cap becos China Mobile might grow exponentially, hence its mkt cap might double every 12 months, if they do not put a cap, China Mobile could make up 20% or 25% of the index in a few years time... why the shares eased on the news is that the cap also means a cap for indexed funds in buying China Mobile, to me its a very small factor but after a certain point, u need not buy a more than 15% of China Mobile to track the index..

kafka said...

Thanks for the explanation, Dali

sopskysalat said...

hi dali,

as i noticed that you only use premium, gearing and expiry for the evaluation of the warrants.

how about others factors such as the intrinsic value, comparing historical volatility against implied volatility and the theta/vega of it?

implied volatility is the most difficult to estimate but any deviation against the historical mean will give good intra/daily ideas for abitrage opportunity?..?

is there any way we can do if market maker fail to swap the bid-offer if the underlying has gone up/down by bigger margin? sometimes, in time of high volatility, they disappear or place the spread wide apart.

just curious and hope you can share your opinion. thank you

Salvatore_Dali said...

sops,

what u r asking is a bit too deep for me .... i think one must be able to calculate gearing and simple premium ... and have an understanding of beta, which is volatility. The new fangled term "implied volatility" is a new term to recalculate beta. Even if you do not know how to work out implied volatility, all u need to understand is the more volatile a stock is, the higher the premium. Warrants for them to be attractive MUST move, up or down ... worst type of companies to do warrants : Petronas Gas, Shell Malaysia, Nestle... u get the drift. Once you get a handle on premium and gearing, u r on yr way.

sopskysalat said...

Dali,

Thanks for the reply. You mentioned, "Once you get a handle on premium and gearing, u r on yr way.", does it mean that I am on my own to decide if on the future movement of the CW? I think the underlying catalyst is the key to determining the drivers for the warrant. Thanks.