Shareholders of IJM Corporation Berhad this week approved the company's proposed 2 for 5 bonus issue and subsequent rights issue of new warrants (most likely be known as IJM-WC) on the basis of 1 new warrant for every 10 shares held post bonus issue.  IJM is one of few blue chips companies who consistently support the issuance of new company warrants.  Over the years, IJM had issue a few series of warrants (IJM-WA, IJM-WB etc.) and each time the warrants created massive wealth for shareholders who are eligible to subscribe at a low price.  IJM's subsidiaries like IJMLAND and IJMPLNT have also issued or about to issued company warrants although these warrants are not naked rights issue but attached free with the respective companies' rights issue.  IJMLAND-WA has enjoyed a spectacular price run of a few times in the past few months.

Because of its issuance of company warrants, third party warrants issuers sometimes find it difficult to attract punter's interest its issuance of IJM structured call warrants.  But due to IJM's size and its status as one of the largest construction companies listed on Bursa, issuers also have opportunity to sell some warrants at the right exercise price especially when the mother share has a big run and the company warrants become deep in-the-money and do not provide punters good gearing.

According to Circular to Shareholders, IJM has not fixed the final warrants issuance price and exercise price yet for the 5 year company warrant IJM-WC.  Nevertheless, the illustrated prices used in the Circular indicate that the issue price price be set at 25 sen and exercise price of RM3.98 (ex bonus).

IJM-CC, the only structured call warrant listed on Bursa Malaysia, will also adjust its exercise price and exercise ratio following the bonus issue by IJM.  According to its issuer CIMB in a recent announcement, the exercise price and exercise ratio will be adjusted to RM3.8571 (from RM5.40 now) and 4.2857 (from 6 now) respectively.  The adjustments take into account for the 2 for 5 bonus issue.  One important thing to note here is that IJM-CC is a European warrant (can only be exercised on expiry) as opposed to the American-style (exerciseable any time) of the company warrants.

Adjustment for rights issue of warrants is not usually made but as shareholders woul be getting the company warrants at a cheap price, mother share price may adjust for the effect.

Existing IJM-WB holders, whose warrant is trading at a small premium and some times at a discount, may exercise their warrant to participate in the corporate actions of IJM.  This way, they can participate in both the bonus issue and rights issue of new warrants.  Given the remaining time period left and the adjustment effect on existing warrants not expected to realize the full benefits of the corporate actions, IJM-WB may see a substantial amount of its outstanding over 21 million warrants be exercised before the ex-date for the corporate actions.

Alan Voon
Warrants Specialist
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August 28th  2009

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