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kent_lim
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Posting #1: Sun Nov 18th, 2007 14:13 |
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Hi all,
I am still new to the world of investment. I need more understanding on warrant so I hope you guys can enlighten me up on this topic.
As far as I know, warrant create an opportunity to by a company share at a cheaper price. Some of the questions that I have are as below:
1. What is the meaning of the statement that I usually see on articles like "company X exercise its warrant"? Is this means that the particular company X is trying to fund its capital from the exercise of its warrant? Will the number of shares in that company increase after they exercise the warrant?
2. I do know that a warrant actually have an expire period. So when the warrant expire, does it bring any good to the company in terms of cash flow ar anything in particular?
Thank you very much.
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Moolah
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Posting #2: Mon Nov 19th, 2007 02:03 |
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Let me try answer you.
As far as I know, warrant create an opportunity to by a company share at a cheaper price.
Yes, that's true but this is not a 100% gimme. In the stock market, one should notr say NEVER and one should never ASSUME or take things for granted. Prices do change. And what appears an opportunity 'now', might not be in the future.
For me, my definition of a warrant is that a warrant entitles the buyer an option to buy a share at a price which is fixed or rather as stated in the warrant.
Let me take a real life example. The most actively traded warrant last friday was Tanco-Wa.
Now most brokerage houses offer you live quotes and in their live quote you can get tons of info.
For example, the below screen snip is taken from RHB website. And under the GENERAL INFO, one can get the following info on the warrant.
Now if you focus on the two jelly beans attached on the pix above, you will be see the MOST important info for the warrant.
The UNDERLYING SHARE or MOTHER SHARE, Tanco last traded at 0.415.
The exercise price is 1.00. And this warrant expires on 17th Feb 2008.
Last traded price of Tanco-Wa is 0.105.
Now by definition, buying this warrant entitles the buyer the OPTION of owning the mother share at a fixed price of 1.00. And the buyer has the option of doing so before it expires on Feb 2008.
Now, the exercise price or conversion price here is 1.00.
Which means that this OPTION would cost the buyer 1.00 (conversion price) + 0.105 (warrant price) which equals 1.105.
Now with the MOTHER share trading only at 0.415, the warrant buyer has to address the issue of whether buying the warrant makes sense or not.
1. What is the meaning of the statement that I usually see on articles like "company X exercise its warrant"? Is this means that the particular company X is trying to fund its capital from the exercise of its warrant? Will the number of shares in that company increase after they exercise the warrant?
When say ABC company, sees a 20,000 shares being exercises, it means that some warrant owner(s) has taken up the OPTION of converting their warrant into ordinary (mother) shares. That's all it means.
And assuming that these 20,000 warrants are exercised, it would mean the number of shares of ABC company has been increased by 20,000.
2. I do know that a warrant actually have an expire period. So when the warrant expire, does it bring any good to the company in terms of cash flow ar anything in particular?
Now this depends greatly on whether the warrants are in the 'money' or not. If it isn't the money, most of the time the warrants will expire without any conversion. Now if the warrants are converted, the cash flow of the company will improve depending on how many of the warrants are converted.
Hope I answer your questions correctly.
I am not a legal investment advisor... hence... my answers could be flawed.
rgds
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random
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Posting #3: Mon Nov 19th, 2007 06:59 |
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I would like to ask CB for some advice here .. 
Please do a kungfu demo on warrants CB..
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kent_lim
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Posting #4: Mon Nov 19th, 2007 14:38 |
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Hello Moolah,
Thank you for your very detail explaination. Just to confirm with you.
1. Let say I am holding a warrant on company ABC. Before the expiry date I will have the option to sell/trade it like any other stock or I can choose to convert it into ordinary share. Am I right?
2. Upon the expiry date, company ABC will have the right to either convert the warrant into share or just let it expire if the convertion price + warrant price is less than the mother share. Is this correct?
Thank you very much for all the replies.
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James Bull
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Posting #5: Mon Nov 19th, 2007 15:07 |
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warrant create an opportunity to by a company share at a cheaper price
Most of the time warrant will be traded at more expensive price. lower absoluted price compare to mother share price doesnt mean cheap.
The premium will provide a a better idea how expensive is the warrant. In Moolah's example, Tanco-wa is 166.27% more expensive than mother share.
Before the expiry date I will have the option to sell/trade it like any other stock or I can choose to convert it into ordinary share. Am I right?
Yes, you are right. You have right to convert it even it's traded at premium, just nobody stupid enough to convert it.
However, that may not applicable to called/put warrants because called/put warrants usually issued by 3rd party. Nowaday cash settlement is more popular. Therefore, you are advisible to understand the term sheets before you drawout your investment plan.
Upon the expiry date, company ABC will have the right to either convert the warrant into share or just let it expire if the convertion price + warrant price is less than the mother share. Is this correct?
No. it's compulsory because the company has the obligation to exercise the conversion upon the expiry, even if it's out of money, again, just no one stupid enough to exercise it.
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kent_lim
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Posting #6: Mon Nov 19th, 2007 15:50 |
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No. it's compulsory because the company has the obligation to exercise the conversion upon the expiry, even if it's out of money, again, just no one stupid enough to exercise it.
Hello CB,
In your statement above, does it means that the warrant holder still have the choice of whether he/she want to convert to ordinary share upon the expiry?
My last question is:
1. Can a company buy its own warrant and convert it?
Thank you for all the prompt replies.
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James Bull
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Posting #7: Mon Nov 19th, 2007 16:18 |
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In your statement above, does it means that the warrant holder still have the choice of whether he/she want to convert to ordinary share upon the expiry?
Yes you are right. It will become a toilet paper if you still keep the warrant after the expiry.
Can a company buy its own warrant and convert it?
Not sure but theoretically they cant. So far i didnt see any company buy back its own warrant.
However, 3rd party warrant issuers may buy back its own called warrants (Of course they can sell it back to you) because they have obligation to become a market market.
Btw they look like seldom doing their job in all called warrants after the 1st listing date. 
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Moolah
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Posting #8: Tue Nov 20th, 2007 08:46 |
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kent,
I hope CBull has answered all your questions.
Cheers
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kent_lim
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Posting #9: Tue Nov 20th, 2007 15:45 |
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Hello Moolah and CB,
All my questions and doubts had been answered. I have learned a lot from you guys and I am sure in the future as well.
Wow we are really close to Xmas. Haha.
Thanks guys and keep up the good job.
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James Bull
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Posting #10: Tue Nov 20th, 2007 16:59 |
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TheChargingBull wrote:
In your statement above, does it means that the warrant holder still have the choice of whether he/she want to convert to ordinary share upon the expiry?
Yes you are right. It will become a toilet paper if you still keep the warrant after the expiry.
Can a company buy its own warrant and convert it?
Not sure but theoretically they cant. So far i didnt see any company buy back its own warrant.
However, 3rd party warrant issuers may buy back its own called warrants (Of course they can sell it back to you) because they have obligation to become a market market. (Sorry, it should read as market maker)
Btw they look like seldom doing their job in all called warrants after the 1st listing date.
Last edited on Tue Nov 20th, 2007 17:06 by James Bull
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