You should noticed there’re four more Call Warrant issued by CIMB Investment Bank for two foreign-listed shares namely Singapore Telecommunications Limited (SIN: Z74) and HSBC Holdings PLC (HKG: 0005). The stock-code for Singapore Telecommunications Call Warrants will be known as SINGTEL-C1 and SINGTEL-C2 while HSBC Holdings will be known as HSBC-C1 and HSBC-C2 respectively.

Singtel-C1 would have exercise price of RM7.80 while HSBC-C1’s conversion price would be $65.60. The issued price for both Singtel-C1 and HSBC-C1 is RM 0.63 with expiry period of 7 (seven) months. Below are the Call Warrant’s issue details:

1. 50,000,000 European Style non-collateralised cash-settled Call Warrants over ordinary shares of Singapore Telecommunications Limited (“SINGTEL-C1“). Exercise / Conversion Ratio – 2 Call-Warrants : 1 Singtel Share
2. 100,000,000 European Style non-collateralised cash-settled Call Warrants over ordinary shares of HSBC Holdings PLC (“HSBC-C1“). Exercise / Conversion Ratio – 10 Call-Warrants : 1 HSBC Share
3. 25,000,000 European Style non-collateralised cash-settled zero strike Call Warrants over ordinary shares of Singapore Telecommunications Limited (“SINGTEL-C2“). Exercise / Conversion Ratio – 1 Call-Warrants : 1 Singtel Share
4. 10,000,000 European Style non-collateralised cash-settled zero strike Call Warrants over ordinary shares of HSBC Holdings PLC (“HSBC-C2“). Exercise / Conversion Ratio – 1 Call-Warrants : 1 HSBC Share

Now, there’s difference between European-Style Warrant and American-Style Warrant. For option traders trading the instrument in the U.S. stock market, just interchange the word “Warrant” with “Option”, it’s the same. A European-Style Warrant or Option can only be exercised on the expiry-date whereas an American-Style allows you to exercise at any time up to and including the expiry-date.

Since Securities Commission amended the SC Guidelines in October 2006 to allow issuers to issue structured warrants on foreign-listed shares and indices, local issuers such as CIMB (Commerce International Merchant Bankers), an investment bank of Bumiputra-Commerce Holdings Berhad (KLSE: COMMERZ, stock-code 1023), has taken the opportunity to make money by doing so. At the same time, this also allows Malaysian investors to gain exposure of foreign markets without having to actually open overseas trading accounts.

Before you jump into the foreign-listed Call-Warrant, you should know that investing in these warrants do not entitle you the rights as a normal shareholders (can’t vote), not to mention the risk associated with the fluctuations in the price of the underlying shares itself and the short life-span. Unlike warrants, call warrants are issued by third parties such as CIMB or OSK Investment Bank (I prefer to call them market makers) based on existing stock shares. So your risk is closely tied to these investment banks and the time remaining to the expiration. If these investment banks go bust, there goes your money.

Therefore, they do not increase the issued capital or dilute the earnings of the company as a warrant do. You buy Call Warrant(s) to hedge your position (but most speculators or gamblers will have their own creativity plan for it).

There’re two factors which will enable you to make money if you plan to play with this new stock. First if the foreign share price of Singtel or HSBC goes up, then the call-warrants will be in-the-money (a term which I hijacked from option trading). Second, if the foreign currency (Singapore or HongKong dollar) appreciate against Malaysian Ringgit then you’re in luck because the value of the Call-Warrant will have higher value. Don’t you wish CIMB issue the Put-Warrant as well so that investors can make money on either direction of the share’s trend?

Other Articles That May Interest You …

• Know The Difference – Warrants & Call-Warrants
• Options Investing 101 – Part 1
• Options Investing 101 – Part 2
• Options Investing 101 – Part 3

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June 11th, 2007 by financetwitter

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