'Warrant holders must be protected from price dilution'
'Warrant holders must be protected from price dilution'
JAKARTA (JP): Warrant holders should be protected from a
possible price dilution, which might occur as the impact of share
splits or the issuance of rights and bonus shares, says an
executive of the Jakarta Stock Exchange (JSX).
JSX's president, Hasan Zein Machmud, said yesterday that such
protection is essentially important to ensure a price certainty
during the exercising period of warrant trading.
Warrant holders could suffer great losses from an unexpected
share split and issuance of rights or bonus shares, he told
securities analysts and executives in a seminar on warrant,
margin trading and prohibited transactions on Indonesian stock
exchanges.
A warrant is a certificate issued by a company as a long-term
call option to buy a specific number of stocks at a specific
price.
If the publicly listed companies have a plan to split their
shares and to issue rights or bonus shares, the intention should
be mentioned in the prospectus published to support the warrant
issuance, Hasan said, adding that giving information in advance
of the possible dilution in the share price is important to
inform the investing public of any possible risk of the warrants
they want to buy.
Ometraco Corp. and Bank Bali floated detachable warrants on
the local bourse early last month as sweeteners of their rights
issues.
The two publicly listed firms are the first to benefit from
the long-waited ruling of the capital market watchdog on the
warrant instrument.
Modern Realty, the listed property division of the Modern
Group, had to delay its plan to issue the same type of warrant
instruments last year due to the absence of the legal base to
regulate the sales of such a capital market instrument.
Hasan said yesterday that for the time being the sales of the
derivative instrument on a local stock exchange would be limited
only to detachable warrants, given the speculative nature of the
certificates.
Bill Foo, president of Schroders Indonesia, said the warrant
instruments could give the investing public higher gains than
those obtained from the conventional share trading.
"But on other side, investment in warrants could also result
in higher loses due to the volatility of their prices," he said
at the same seminar.
Confusing
Hasan said that the issuance of warrants on the local market
could also confuse the exchange's authority when calculating the
level of foreign ownership in the issuing company due to the
difference in the exercising term of respective holders.
Warrant holders are allowed to exercise their rights to buy
shares at a specific price during the exercising period, which
normally lasts for five years.
"It will be more difficult if the exercising is only carried
out by foreign investors," he said, adding that under such
circumstances, foreign investors could be barred from exchanging
their warrants with new shares because the 49 percent shares
allocated to foreign buyers could be realized before they have
the opportunity to use their rights.
"In this case, warrant issuers should mention such a
possibility in the prospectus so that the foreign buyers will
anticipate it," he said.
Foreign buyers lodged a complaint last week to the capital
market watchdog about their inability to execute their rights to
buy Bank Bali's rights shares. Local investors were reported to
have sold their rights certificates to foreign buyers off the
market, thereby causing an unproportionate increase in the
foreign holding to the 49 percent limit.
Hasan said that the capital market watchdog should also
cancel its ruling regarding the sales of rights certificates off
the market.
Trading outside the bourse, according to him, should be
completely banned to ensure a fairer transaction and a fair
distribution of shares to foreign buyers.(hen)