Guan Chong: Bonus and Warrants

Guan Chong

Before Bonus Issue:  240 m existing shares.

After Bonus Issue:  240 m existing shares + 80 m new shares = 320 m shares

Warrants issued: 60 m warrants.
Exercise Price MR 2.00.
Conversion 1 warrant for 1 mother share.
Lifespan of warrant: any time within five (5) years 
EX-date:10/02/2011
Entitlement date:14/02/2011
Entitlement time:05:00:00 PM

The price per mother share for determining the price of the warrant was based on a recent 5 days average price of RM 2.44.  After bonus, this 240 m shares will increase to 320 m shares and each share is then priced the equivalent of RM 1.83.

The warrants are given free.  Each warrant can be converted to one mother share.  With an exercise price of MR 2.00, each warrant is issued at a premium of RM 0.17 or 9.29%.

[On 21.1.2011, the price of Guan Chong was RM 2.62 per share.  After the bonus exercise, the share price will be RM 1.965 per share.  The warrant will be at a premium of RM 0.035 or 1.8% only.]

Understanding warrants

A warrant is a derivative.  It derives its value from its underlying mother share.

The performance of a warrant will always depend on performance of its underlying share mother share.

Warrant is trading at a discount when:
Mother share price > Price of warrant + Exercise Price

Warrant can trade at a discount if the underlying share has just enjoyed a spectacular run in price.  Investors should avoid buying these discount warrants if they feel the high price of the mother share is unsustainable.

Warrant is trading at a premium when:
Mother share price < Price of warrant + Exercise Price

The warrant's premium can crudely measure how much more expensive it is to acquire a share via a warrant compared to buying a share directly.

Premium are commonly used as a quick measure of the warrant's expensiveness.

Because warrants are issued at a premium, investors must consider if it can appreciate to a level that allows recovery of the paid premium within the warrant's lifespan.

Another important factor to consider when selecting a warrant is volatility. A high volatility warrant, even though more expensive, can very well generate more money than a low volatility warrant. High volatility means that the underlying share is more likely making big swings.

It has to be noted that the time span to expiry is very important for warrants. The longer it is from expiry, the higher should be the premium because longer time will be afforded for the mother share to rise.

Of course, you are entitled to dividends as shareholders, but as a warrant holder, you only need to pay a fraction of what shareholders pay.

Most Malaysian investors do not have a good understanding of warrants. However, it must be noted that we should not purchase warrants that are grossly out of money.

While warrants can offer a smart addition to a portfolio, keep in mind the following - your view of the underlying share is important; understand the unique nature of warrants and stay attentive to small movements in the market.

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Company Name: GUAN CHONG BERHAD
Stock Name: GUANCHG
Date Announced: 11/01/2011

Subject: GUANCHG - NOTICE OF BOOK CLOSURE

1) Bonus issue of 80,000,000 new ordinary shares of RM0.25 each ("Bonus Shares") in Guan Chong Berhad ("GCB") ("GCB Shares")to be credited as fully paid-up on the basis of one (1) Bonus Share for every three (3) existing GCB Shares held ("Bonus Issue").

2) Issuance of 60,000,000 free warrants in Guan Chong Berhad ("GCB") ("Warrants") on the basis of one (1) free Warrant for every four (4) existing GCB Shares held.

Kindly be advised of the following :

1) The above Company's securities will be traded and quoted [ "Ex - Bonus Issue" ] as from : [ 10 February 2011 ]

2) The last date of lodgement : [14 February 2011 ]

3) Retention Money : Where securities are not delivered in time for registration by the seller, then the brokers concerned :-

a) Selling Broker to deduct [ 7/19 ] , of the Selling Price against the Selling Client.

b) Buying Broker to deduct [ 45.00%] of the Purchase Price against the Buying Client.

c) Between Broker and Broker, the deduction of [7/9 ] of the Transacted Price is applicable.

Remarks : "Bursa Malaysia Securities Bhd would like to clarify that on the basis of settlement taking place on 16 February 2011 with bonus issue of GUANCHG shares of RM0.25 each, any shareholder who is entitled to receive GUANCHG bonus issue shares, may sell any or all of his GUANCHG shares arising from the bonus issue beginning the Ex-Date (10 February 2011).

For example, if Mr. X purchases 300 GUANCHG shares on cum basis on 9 February 2011, Mr. X should receive 300 shares on 14 February 2011. As a result of the bonus issue, a total of 400 GUANCHG shares will be credited into Mr. X's CDS account on the night of 14 February 2011 being the Book Closing Date. Therefore, Mr. X can sell the bonus issue shares of 400 on or after the Ex-Date ie from 10 February 2011 onwards."

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Company Name: GUAN CHONG BERHAD
Stock Name: GUANCHG
Date Announced: 07/01/2011

On behalf of the Board, we are pleased to announce that the Board had on even date, resolved to fix the exercise price of the Warrants to be issued pursuant to the Proposed Free Warrants Issue at RM2.00 per GCB Share (“Exercise Price”), which represents a premium of approximately 9.29% or RM0.17 over the theoretical ex-price after the Proposed Bonus Issue of RM1.83 per GCB Share, calculated based on the five (5)-day VWAP of GCB Shares up to and including 7 January 2011 of RM2.44.

Based on the exercise price of the Warrants of RM2.00 per new GCB Share, the Company stands to potentially raise up to RM120 million during the tenure of the Warrants upon full exercise of the Warrants by the holders of the Warrants. Such proceeds will be utilised for the day-to-day working capital requirements of the GCB Group.

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Lifespan of warrant: The Warrants may be exercised at any time within five (5) years commencing on and including the date of issuance of the Warrants and ending at 5.00 p.m. on the date preceding the fifth (5th) anniversary of the date of issuance, or if such day is not a market day, then it shall be the market day immediately preceding the said non-market day, but excluding the three (3) clear market days prior to a book closure date or entitlement date announced by the Company and those days during that period on which the Record of Depositors of the Company and/or Warrants Register is/are closed.Any Warrant not exercised during the exercise period will thereafter lapse and cease to be valid.


http://announcements.bursamalaysia.com/EDMS/edmswebh.nsf/all/482576120041BDAA482577B9003BAABC/$File/GCB%20-%20Announcement.pdf