Category: Money tips Release Date: 2006-05-04
In the future there will be more and more companies realize the benefits of warrants, which warrants used in the share reform program, particularly the issuing of convertible bonds of listed companies. With the continued listing of warrants product, its market price will allow investors to further deepen the understanding of convertible bonds.
July 18, respectively in Shanghai and Shenzhen Stock Exchange, promulgated the "Interim Measures for the C of E Business Management", marks the warrants product will return to China's stock market.
The warrants are introducing products to the split share structure reform is only provide a tool for the public's choice, although for now, only a very small number of pilot companies with warrants program, but we believe that in the future there will be more and more companies realize the benefits of warrants, which warrants used in the share reform program, in particular the issuing of convertible bonds of listed companies. With the continued listing of warrants product, its market price will allow investors to further deepen the understanding of convertible bonds.
Convertible bonds can be used to change the company shares with warrants
At present the pilot did not issue convertible bonds of listed companies, while the pilot has been completed with convertible bonds of listed companies, only Jinniu Energy (000937 market, information, advice, more), its market performance, Major Holders programs on the flow of shareholders and holders of convertible bonds are not a good program, due to the split share structure reform Major Holders switch is not adjusted stock price, the holder of the convertible bonds disadvantage is obvious, while the large share transfer led to a drop in stock price so that shareholders in circulation damage In this case, if the warrants listed companies tradable share reform program, both warrant or a put warrant is an ideal choice.
Warrants program: At this point if the company's convertible bonds was stock, which means that share price is much higher than the share transfer price, then the exercise price of warrants generally will not be less than the share transfer price. This absence of ex-dividend effect, almost no impact on convertible bonds, the impact of its outstanding shares is the exercise price of the program relative to the current price premium of only.
And if the company's convertible bonds was debt, which means that stock prices are much lower than the share transfer price, then the warrant exercise price will be lower than the share transfer price, the price of its convertible bonds will be minimal impact, of course, If the exercise price due to higher premium rates arising from stock price rise, then the convertible bonds will benefit from it.
Put warrants program: Obviously if the company's convertible bonds was stock, which means that share price is much higher than the share transfer price, then the exercise price of put warrants will also be higher than the share transfer price, and this will inevitably block the stock price fall thus blocking the convertible bonds fall in space, makes the convertible bonds stabilize at a high level, but will also encourage listed companies to meet the aspirations of share transfer.
And if the company's convertible bonds was debt, which means that stock prices are much lower than the share transfer price, then the exercise price of put warrants may also be lower than the share transfer price, which may be similar to a listed company's share repurchase program , the objective of raising the value of the stock so as to enhance the value of convertible bonds.
To sum up, whether the program warrants, or warrants program put the negative impact of the convertible bonds is limited, the key is for the circulation of the shareholders warrant exercise price premium relative to the price, so For convertible bonds of listed companies, or Major Holders can not provide high-value pairs of the company should be an ideal choice.
Warrants listed investment value of convertible bonds appear
Classical theory suggests that convertible bonds, convertible bonds can be seen as a normal corporate bond with an American-style warrants composition (American warrants means can be OK at any time before the expiration of the right), clearly warrants should be a valuable However, as this value is included in the bonds, in emerging markets as retail investors is not enough for this species to understand the validity of a result of convertible bond market weakened, the price of convertible bonds did not fully reflect the value of warrants.
But when there is a separate species warrants listing, because Bijiaxiaoying, publicly traded warrants and pricing could lead to increased pricing of convertible bonds.
One of the reasons are these: warrants traded on the possibility of using market-maker system, market-maker system refers to a certain power brokers to provide trading liquidity, that is provided by the broker the sale of warrants trading quotes, apparently provided by the broker have some reasonable prices (In general, the brokerage model based on parameters calculated by a sale offer, plus handling fee), does not appear in the free auction overestimated or underestimated when the situation warrants such a reasonable Pricing will become more rational pricing of convertible bonds.
The pricing of warrants is generally through a balanced no-arbitrage principle to come, assuming the market does not exist in any case a risk-free arbitrage opportunity to calculate the warrant price. However, this arbitrage mechanism for co-ordination must be short, such as when the warrant is undervalued, can be used to buy the underlying stock warrants and short way arbitrage, the arbitrage valuation of warrants can be rationalized.
However, If you can not short the stock, then the situation warrants will be undervalued in the market a long time, many theorists of domestic convertible bonds study found that many of convertible bonds of the option value has been underestimated, or even a zero option value situation, this is short because there is no mechanism for the domestic market caused by the pricing bias, but with the warrants product, the stock put warrants an objective to provide a tool for short, although the arbitrageurs can not short stocks, but they can buy Put the stock into warrants to achieve the effect of short selling, so as to enable the next phase of domestic convertible bonds pricing return to their proper value.
Advantages of convertible bonds will continue to
Range of warrants for future products will be flooding the market, investors can choose an increasing number of investment products, previously only by investing in convertible bonds to invest in financial derivatives, investors can now direct investment warrants product, but the relatively warrants convertible bonds both for issuers and investors, has irreplaceable advantages.
For the issuer, the future can be financed through the issuance of warrants to, but because of the initial financing of the amount of issue is very limited, only the line will only gradually put in place the right amount of financing, so the issuer will normally be financed entirely through warrants, but will attached to the other varieties in order to increase the attractiveness of the species distribution, for example: attached to the ordinary corporate bonds, the in order to increase the attractiveness of bond issuance. This product is actually a right attached to bonds, but also a financial innovation, it is estimated in the future as the warrants product continues to mature, will be gradually available.
However, at present, issuing convertible bonds or preferred corporate refinancing program. This year, due the split share structure reform, issuing convertible bonds at a standstill.
We can anticipate that when the stock split will usher in a pilot ended the issuance of convertible bonds to a climax.
For investors, the warrants is a speculative high risk species, only the market experienced strong risk tolerance of investors allowed to participate. Retail investors can only use a small amount of money involved, but the warrants to the investors portfolio allocation provides a tool, for example, investors need an insurance of this but to have access to high-yield potential configuration.
Warrants with a new attitude to return to China's securities markets, it will bring about the development of derivatives markets in China have far-reaching impact, while the convertible bonds, the growth in China's growing maturity of derivative financial products, regardless of the past, present or the future, its investment appeal are irreplaceable.
(The author worked at Guotai Junan New Product Development Department)
