Malaysian Investor - Investment Products

What Are Structured Warrants?

Are you aware that you can invest in warrants as an alternative to shares? What is a warrant? Is it risky? Read on to find out more.

Essentially, when you invest in a warrant, you are making a “reservation” to buy a predetermined number of shares at a certain price in the future. A warrant is a derivative, which means that its value is derived from the underlying shares. It provides a cheap way of investing in a listed company’s shares without having to pay the full amount. The downside is that it has a maturity period – usually up to 10 years – and is worthless if an investor holds it beyond the maturity date. It also does not give warrant holders any voting right, dividend and right to claim against the company’s assets.

IQ Bijak Labur Glossary

Underlying Shares: Also known as the “mother share”, which the warrant is based on.

Exercise Ratio: Number of shares that a warrant will convert into if the warrant is exercised.

Exercise Price: The agreed price for a warrant holder to buy shares based on the exercise ratio if a warrant is exercised.

Expiry Date: The last day on which the warrant may be exercised. The expiry date of each warrant will be defined by the issuer of the warrant.

Settlement: What a warrant holder receives when he exercises the warrant. It could be either cash or physically settled.

When a warrant holder wants to “exercise” and the exercise price (inclusive of the cost of the warrant) is less than the market price of the underlying share, the warrant holder will make a profit. However, if the exercise price is higher, the warrant holder will lose money. Examples of warrants are Khazanah’s basket warrrants, CIMB’s basket warrants, single stock warrants and OSK’s zero strike call warrants.

*To learn more about warrants, go here

What is a structured warrant?

To understand what a structured warrant really is, let’s compare the characteristics of a company warrant and a structured warrant.

	Company warrants	Structured warrants
Issued by	Listed company	Third-party financial institution
Underlying shares	Shares of the company	Any company shares that are not related to the financial institution (but must meet the requirements under the SC's Guidelines for the Issue of Structured Warrants )
On exercise	Company will issue additional shares to meet obligations. This results in share dilution	Does not result in dilution of the underlying shares
Maturity period	Up to 10 years	6 months to 5 years
Settlement	The terms and conditions of warrants are freely defined by the issuer