Leap of Faith-Gangnam Style?

Power to Generate Cash for You?

Yes, I am talking to all of you, YTL Corp shareholders who did not sell your ROS option forms for YTL Power warrants 08/18.

I may be wrong but YTL Power warrants is mainly held by YTL Corp (some 95% if I am not wrong).They can selling it to all shareholders of YTL Corp who held sufficient units on 2 October 2012 on a basis of  1 unit for every 15.

What was its original cost in 2008. A mere 10 sen.

Cash Transfer to You?

So, my guess is all that was sold (almost) has been Treasury-bought by YTL Corp. YTL Corp may have bought it at about 15 sen, that is my surmise.

So, the 5 sen offered is holding cost.

It has been 4 long years and the warrants have been collecting dust in the vault of the company. Now, they want to cash it out at the cheapest cost-Gangnam Style.

At almost 50 sen per traded YTL-Power warrant, 20 sen was cheap. It has fallen.

So today, it is at 41.5 sen, a 48% discount gross. Why?

Minority shareholders, fearing a deluge or a stampede of sellers getting steep-discount warrants are throwing them out at a profit of RM 0.21 sen gross.

My guess is these buyers are not retail buyers. The likely buyer again are Treasury buy-ins from YTL Corp or YTL Power.

So, now that you are saddled with the ROS form to subscribe for the 20 sen warrant discounted to you by 21 sen or net 17 sen market price, what is your decision?

Leap of Faith-Gangnam Style?

To buy or not to buy?

A quandary. So, do you fee like Hamlet now?

Let us do our final scenario building and look for the darkest one versus the brightest one and also the median picture.

 They say bad feedback is good for you. So, here we go.

You are not in the money at all if the YTLP Warrants are priced at RM 0.25.

Risk spread.

At current 41.5 sen, [ if it stands firm], you will stand a chance to sell it at RM 16.5

Median scenario. YTLP warrants fell midway to RM 0.34 sen. when you sell, you will obtain 9 sen

Worse scenario model for me-the warrants trades at 25 sen.

Let us build up the best scenario, and median scenario where a shareholder wants to subscribe for all of his or her 60,000 units offered.

Cost of funds:

Outlay: RM 12,000

Bank Draft: RM 5.00

Stamp duty : RM 10.00

Total:  RM 12,015

Best scenario:

60 lots x 41.5 =  RM 25,200

Deduct for overhead : RM 209.96

Net payout: RM 24,990.04

Deduct for full expenses: RM 24,990.04- RM 12,015 = RM 12,975.04

Return: 107.99% return (Positive)

Median scenario:

60 lot x 340 =  RM 20,400 gross

Deduct for overhead : RM 169.92

Net payout: RM 20,230.08- RM 12,015 = RM 8,215.08

Return: 68.37% (Positive)

When it touches almost quicksand and hand-trembling  RM 0.25 sen, this will be the scenario.

60 lot x 250 =  RM 15,000 gross

Deduct for overhead : RM 124.50

Net payout: RM 14,875.50- RM 12,015 = RM 2,860.5

Return: 23.80% (Positive)

Get out before it goes down further!

Otherwise, Hades will smile hell-fire at you!!

Currently, I see a support price of the warrants at RM 0.40 sen.

I hope that this will be the traction point to attract subscription which will close on 17 October 2012.

After that, YTL Corp must hold on to maintain its goodwill.

A 24-sen price level is actually dead-meat for YTL Corp!

Remember, this exercise cost money to YTL Corp.

If they cannot dispose their holdings of YTLP warrants via this subscription exercise, they will just have to shelved it as there is no underwriter for the offer.

So, what do you think?

For those reading my post, this is not a solicitation for you to buy into the warrant subscription.

Caveat Emptor!

Caveat emptor!