Good start for covered warrants


TRADING in Khazanah Nasional Bhd’s covered warrants got off to a good start with two of the three securities which began trading yesterday leading the most actively traded list, and among the strongest gainers on the KLSE. 

Malayan Banking Bhd call warrants (Maybank-CA) took the top spot as the most briskly traded security on the exchange with 19.29 million warrants changing hands, while Malaysia International Shipping Corp Bhd call warrants (MISC-CA) were the fourth most highly traded security on the KLSE with 10.57 million traded. 

The price of MISC-CA also made impressive gains from its retail reference of 68 sen to reach a high of RM1.09 in morning trade before falling back to 96.5 sen, still a healthy rise of 42% or 28.5 sen on its retail reference price. 

Maybank-CA, which opened at RM1.60 – well above its retail reference price of RM1.14 – closed the day at RM1.32, about 16% or 18 sen above the reference price. 

Tenaga Nasional Bhd call warrants (TNB-CA), the third security listed yesterday, rose to a high of RM1.42 from its retail reference price of RM1.27 but fell back to close at RM1.23. A total of 4.57 million units of TNB-CA were traded. 

Analysts said the covered warrants which Khazanah offered at RM6.50 each to retail – and at RM6.60 to institutional – investors, had provided “fantastic capital returns”, and the brisk trading and strong support suggested there was still strength in the underlying shares of these companies. 

With the relatively low offer price for the package, investors were effectively being given exposure to large capitalised stocks at a bargain, said one analyst, who estimated the fair value of the warrants to be about RM7.68. 

Another local research house analyst said that, with an expected 20%–30% premium on conversion, future expectations and opportunities for arbitrage played heavily on investor interest yesterday. 

Maybank-CA is exercisable at RM9.72, MISC-CA at RM8.42 and Tenaga-CA at RM9.95. 

“Some investors were obviously expecting further upside in the future mother share price of these companies, while others switched out of shares into call warrants,” he said. 

OSK Research assistant general manager Pankaj Kumar said there could be an advantage to looking long term. He said there were possibilities of gains of between 63% and 89% over the next 12 to 18 months based on the fair values of the respective underlying stocks. 

Yesterday, the underlying shares of TNB gained 15 sen to RM9.05, while MISC put on 10 sen to RM7.95. Maybank, however, shed 5 sen to end the day at RM8.95. 

In what was generally perceived by the market as a very good buy, Khazanah’s offer last month of 31 million packages of covered warrants – comprising 29.45 million for institutional, and 1.55 million for retail, investors – received overwhelming response. 

The institutional offering had an oversubscription rate of 2.6 times, which, in effect, put total demand from institutions at 75.84 million covered warrants. 

The retail offering achieved an incredible subscription rate of 8.4 times.The warrants were detached and traded separately for the first time yesterday in the ratio of 4:1:1 (124 million: 31million: 31 million) for Maybank-CA, MISC-CA and TNB-CA, respectively. 

Khazanah has said it expected gross proceeds of about RM202mil from the sale, of which RM196mil would be for the agency’s working capital and the balance to cover expenses of the issue. 

The exercise period for the covered warrants is 4 years and 6 months from the issue date, and each warrant entitles the holder to either one corresponding underlying stock or equivalent cash amount. Khazanah has the right to choose either method of settlement. 

Stock watch on MISC 

Stock watch on Maybank 

Stock watch on Tenaga 

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