Second liner call warrants in focus

KUALA LUMPUR: Structured warrants issued over the shares of situational stocks and second liners have come into active
investors’ play despite the bearish sentiment persisting over equity markets in recent months.
According to data compiled by Bursa Malaysia, the top three most active warrants in December were those issued by Wijaya
Baru Global Bhd (Wijaya-WA), Proton Holdings Bhd (Proton-CG) and JCY International Bhd (JCY-CD),
Notably, warrants issued over the stocks of FBM KLCI’s component stocks did not make it to the list of the top 20 most
active warrants in December 2011.
All three of the most active warrants last month had their respective catalysts to support an uptrend in the stock prices of
their mother shares and investor interest in the warrants.
Take for example, Wijaya-WA which emerged as the most active warrant in December with a volume of 895.13 million units
done.
Wijaya Baru in October last year announced its foray into Indonesia’s logging sector after acquiring two companies for US$80
million (RM252 million).
The group’s new business venture came more than a year after its last timber licence expired.
Wijaya-WA yesterday closed down one sen to 34.5 sen with 9.26 million units traded while its mother share gained 1.5 sen to
81 sen with 3.34 million shares done.
Similarly, Proton’s shares and related warrants also received a boost from late November last year amid speculation that
Khazanah Nasional Bhd would sell its 42.7% stake in the national carmaker.
Khazanah yesterday announced that it would sell its strategic stake in Proton to DRB-Hicom Bhd for RM1.291 billion cash or
RM5.50 per share.
Proton-CG was the second most active warrant in December with 822.57 million units traded.
The national carmaker’s shares and related securities were suspended from trading yesterday pending the announcement on
Khazanah’s stake divestment.
Listed yesterday, the warrants of Hiap Tek Venture Bhd (Hiaptek-WA) emerged as the top gainer on the local bourse after
they gained 26.5 sen to 27 sen.
Hiaptek-WA was offered to investors as part of Hiap Tek’s renounceable rights issue on the basis of one rights share for
every Hiap Tek share held and one warrant for every four rights shares subscribed to.
In a recent interview, OSK Investment Bank Bhd head of derivatives and structured products Foo Keah Keat said issuing
structured warrants over “second-liner” stocks has become an alternative to issuing such products based on blue-chip stocks.
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According to Foo, the requirements imposed on issuing structured warrants often made it challenging to issue and sell
structured warrants based on blue-chip stocks.
“The challenge is that we can only issue warrants based on blue-chip stocks because of the RM1 billion market capitalisation
requirement, these stocks are said to be more liquid and are supposedly more safe.
“But unfortunately most of the blue-chip stocks are dominated by government-liked institutional funds and the liquidity isn’t
there,” Foo told The Edge Financial Daily.
One of the key guidelines for the issuance of structured warrants is that the underlying corporation of exchange-traded fund
(ETF) must have an average daily market capitalisation of at least RM1 billion in the past three months ending on the last
market day of the calendar month immediately preceding the issue date.
Additionally, the issuer of structured warrants must ensure that the underlying corporation is in compliance with the stock
exchange’s public shareholding spread requirement.
Foo said that although Malaysian investors are familiar with call warrants, there is still little demand for put warrants and
warrants issued over foreign stocks.
Structured warrants based on US and Hong Kong stocks could offer better directional play for investors given that these
major markets tend to have greater depth, liquidity and volatility.
“Somehow, investors here are not warming up to foreign warrants. Our last issue was (call warrants over) Citigroup shares
and there wasn’t much interest. But we still do want to issue foreign warrants from time to time,” he said.
This article appeared in The Edge Financial Daily, January 17, 2012.

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