reasons for issues warrants and convertibles

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Reasons for issues warrants and convertibles

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ISHTIAQ AHMEDAH-526270

Topic: Reasons for issues warrants and Convertibles by the

Corporation

Introduction to TopicWarrant:Security that entitles the holder to buy the underlying

stock of the issuing company.

Types of warrants:Equity warrantsCovered warrantsBasket warrantsIndex warrantsWedding warrantsDetachable warrantsNaked warrants

WarrantsUses of Warrants:Portfolio protectionLow costLeverage

Risks:Time decayTime value

Introduction to TopicConvertible bond:Bond that the holder can convert into shares of

common stock in the issuing company. Resolving common project problems

Types of Convertible bond:ExchangeableMandatory convertibles Mandatory exchangeable Contingent convertibles Reverse convertible securities

Uses of Convertible bond

Uses for investors:Issued offering a higher yield than on Shares.Safer than preferred or common shares.Convertible bonds can provide the possibility of high

equity-like returns.They provide asset protection.

Uses for issuers:Lower fixed-rate borrowing costs. long-term borrowingTax advantages.

Reasons for Issuing Warrants and Convertibles

Carries a lower coupon rateReduce agency costsAllow young firms to delay expensive

interest costsUsed by smaller firms with high growth

rates and more financial leverage.Company’s short term need for

money/capital/funding

Practical Study of the Organization

Practical Study of the Organization with respect to the Issue

Why Bahria Town Issue Warrants and Convertibles:

Company’s short term need for money/capital/funding.

Issued to existing share holders more particularly to promoters to increase their stake.

Loans higher rates of interest.Reduce agency costs.

SWOT analysisStrength:Public TrustIndustry leaderGood ReputationWeakness:Artificial Demand CreationJust hitting the main areas of the countryLow return due to Power problems

SWOT analysis

Opportunities:Issue warrants with Low PriceNewly developed areasThreats:Economic condition of PakistanHigh cost due to power sector

Problems

Recommendation

Should have to issue warrants with low price.

Should have to target other small cities of the country.

Should have to take some strong steps for cost reduction.

Conclusion

I have concluded that,A warrant is a security that entitles the holder to

buy the underlying stock of the issuing company at a fixed exercise price until the expiry date.

Convertible is a type of bond that the holder can convert into shares of common stock in the issuing company.

Company’s short term need for money/capital/funding is done through convertible and Warrants.

ConclusionConvertible and warrants which are

converted into equity shares at a definite time are attractive investment opportunities available to investors also.

Bahria town also issue warrants for its short/Long term needs.

Bahria town can enhance its business by issue warrants with low price.

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