YTLPOWR Announces Warrant Pricing

They announced it today after KLSE closed. I'm still trying to figure out if its a good deal or not. So bare with me if my calculation or facts are wrong.

Details;

2,215,122,727 warrants offered ( about 33% of total shares including all ESOS and 2010 warrants not yet exercised)

1 warrant issued for every 3 YTLPOWER shares

1 warrant has the right to 1 YTLPOWER share

1 warrant is to be offered at RM0.10

Exercise price is RM1.25

Exercise period is 10 years


Example;

You hold 3000 shares of YTLPOWR which you bought at the last price of RM2.45

That would entitle you to buy 1000 warrants for RM0.10 each that can be exchanged for 1000 YTLPOWR shares. Excercise price is RM1.25. So total costs to get extra 1000 shares of YTLPOWR is RM1.35 per share if you subscribe for the warrant.

So;

3000 shares * RM2.45 = RM7350

1000 warrants * RM 1.35 = RM1350 (costs of purchase and converting warrants to YTLPOWR shares)

Which means;

Average price per share of YTLPOWER = (RM7350 + RM1350) / 4000 = RM2.175 per share.


Now bear in mind that rights/warrants issues such as these causes the shares to be diluted when it is fully exercised. So prices of YTLPOWR shares will reflect this. Dilution up to a maximum of 33% if all previous 2010 warrants and all their ESOS are exercised. So meaning if everything is exercised, the prices could drop as low as RM1.64 (33% lower of RM2.45). This does not take into account any other price appreciation(depreciation) that would happen due to financial performance.

Good thing about the warrant is that it will last for 10 years. So if you hold on to your warrants and the prices go up, you stand to gain more. But if the prices were to drop below the strike price which is 50% of it's current price, then you lose.

Risks include that if everyone exercise their warrants and you were one of the last few, share prices would be diluted to a point, it would be close to your exercise costs of RM1.35 (lowest is RM1.64 after total dilution)


Conclusion?

I don't know to be honest. But I think YTLPOWR shares will see a jump in price because people will chase it to a point of getting the fair worth in warrant eligibility. Dilution isn't an issue anyway until warrants are actually exercised. And shareholders who own the warrants stand to gain by additional holdings at a discount. Let's see how the market decide shall we?


Updated:

Upon checking KLSE website for warrant summary stated that YTLPOWR still has about 862,663,844 warrants outstanding in the market. Majority of which are being held by Mr. YTL himself. These warrants were issued in year 2000 and expires in 2010.

YTLPOWR also has convertible bonds which amount to about USD242 mil which has yet to be converted. These were issued in 2005. Also there are still ESOS yet to be exercised.

Now both would see some conversion to ordinary shares before they expire in 2010, or maybe even earlier just before the new warrants are issued to take advantage of the new warrant eligibility.

I have no idea if the majority owners of the past warrants would completely exercise their right to ordinary shares, but if they do they would no doubt dilute the company's EPS and would cause the share prices to drop to as much as RM1.50 - RM1.60 range.

Looking at it from this perspective, it certainly shows how much a loss would be to minority shareholders if the majority shareholders exercised. But then again if they do it, it would only cause new shareholders to be unhappy about the prospect of losing monetary wise. Since they don't have any previously offered warrants unless they buy from the market which has already been priced slightly premium.

If they hold the warrants and exercised it near expiry in 2010, they would lose out in terms of gaining more rights to more shares being offered in the new warrant issue. That is assuming the new warrant issue would be in this year. If they hold their warrants and not exercise, current shareholders would gain significant gains from the new warrants as it would be priced fairly to the current market price of the share after deducting warrant and exercise costs.

If they do exercise, current owners would only see a RM0.15 - RM0.25 profit from the new issue. Is it worth holding then or worth buying more at current prices knowing it would eventually drop the moment they fully exercise the entire lot? Only time will tell what is the major shareholders intention.