The first day of trading for KrisEnergy warrants and its zero-interest-rate notes showed huge profit taking for the warrants. In the heat of profit taking, the premium for the warrant to convert to the underlying mother share was reduced to zero based on the closing prices of the warrant and the mother share.
It means people are taking profit in a jiffy on the very first day of the warrants and the notes becoming tradable. It also means some smart money is accumulating the warrants or converting their mother shares to warrants due to the low or zero premium.
The low warrant premium at 0% is a far cry from at least 15% typically for warrants with such a long tradable period before the expiry date and a sound gearing ratio (price of a mother share/price of each warrant)
Also, at the closing price of 41.2 cts for the note, its yield-to-maturity is 13.5% --- very attractive compared to the best fixed deposit rates you can get from any banks in Singapore.
Those who subscribed to the preferential offer, which shareholders of KrisEnergy are entitled to buy 93 zero-interest-rate notes at $1 apiece with sweetener of 837 free detachable warrants for every 1000 shares that they own, would make a return of 15% from their subscription based on the closing prices of their debut. Some of my friends and I applied for the excess notes too and due to the under-subscription, we were given all the excess notes that we had applied for. With the profit taking and with the premium of its warrants reduced to zero percent, It is still a resounding victory for those who subscribed to the offer considering a two-week time frame for this huge percentage of return.
To me, a warrant with a long life span of 7 years and a reasonable gearing of 2.34x (=19.2/8.2) but with a zero premium for conversion to the underlying share is simply abnormal.
If the oil prices can remain stable or creep up from here due to OPEC production cut, KrisEnergy should follow suit. And when the selling pressure of KrisEnergy warrant is gone, it should be more rationally priced at at least a 15% premium or you will see more warrant holders start to convert their warrants to the mother shares if KrisEnergy declares dividends to be paid to shareholders.
Superphang
http://superphang.blogspot.sg
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