Thursday, April 9, 2015

No real correlation between Insas and Insas-PA (Updated)

All the 3 Insas shares made some move today (see below). While that is good for my holdings, as I do have all the 3 stocks, just wanted to highlight that there are no correlation between Insas and Insas-PA.

Share price of Insas'es as at midday 9Apr2015
I have provided some background on Insas-PA here and I want to be clear again of the following characteristics of the Preference share.

IT IS NOT CONVERTIBLE INTO INSAS SHARES. Insas-PA is redeemable at RM1.00 after 5 years. This means that the company - Insas - will give you back RM1.00 for every share that you hold. If you hold 10,000 shares of Insas-PA, they will pay you RM10,000.
In addition to that, it is paying 4% of dividend every year to you as a shareholder.

The only small correlation is that investors are more confident of the redemption by Insas with the upward movement of the share price.
In addition to that, as highlighted through one of the comment, the Preference share can be used to surrender for the conversion of the warrant. This can be a useful tool in the event the Preference share is traded at below RM1.00.

The behavior of investors as they have gotten interested in the preference shares shows that the market is not efficient even in today's times when information is available almost anywhere.

On the other hand, Insas-WB has correlation to Insas as the exercise price is at RM1.00. Currently, it is out of the money - which is quite usual.

7 comments:

Kaw Choi Chong said...

The second reason why there is some correlation between the preference share and the underlying share may be because as the underlying share goes up, there is a higher probability that the warrant will be deep-in-the-money and to be converted. PA can be used as a RM1 cash to do the conversion of warrant to the underlying share, according to the deed poll, as someone has confirmed that.

Imagine you can buy it at 90 sen and then use it as RM1.00 later when needed.

felicity said...

Fantastic

Digital said...

Sorry, you are wrong with INSAS-PA...it is convertible. In lieu of paying RM1 to convert your Insas-WB to Insas, you can use Insas-PA instead. So Insas-PA is unique. It will be interesting to see how Insas-PA moves, when Insas is above RM1.30.

felicity said...

Hi where do you see it as the profile is as below

http://www.bursamalaysia.com/market/listed-companies/company-announcements/1890613

Regards

Digital said...

http://www.bursamalaysia.com/market/listed-companies/company-announcements/1862385


See page 54 of the prospectus under Surrender...may be I should said SURRENDER instead of convertible....anyway to me is the same.

felicity said...

Interesting.
Look at it this way, Insas-PA will not trade at way above RM1.00. But if it is traded at below RM1.00, may be used as a tool to exercise the warrant.
Assuming Insas-WA is in the money, and the Preference is below, I can use it to surrender for the Insas parent share rather than using RM1.00 per share.
Now it makes more sense for INSAS-PA to trade close to RM1.00, if the warrant is in the money.
This permutation makes warrant even more exciting.

Thanks, bring it on.

ronnie said...

Insas-PA certainly looks attractive in this situation