Free warrants and its futility

Free warrant feels like this. If we give it the first time, the children (meaning the ones that are still immature) will like it - feels like free ang pows. Precisely. But soon, the children will also realise that the free ang pows that we give is just a paper money which is worth less when we print our own money.

If we give out too many times just like what Vivocom did - in total 5 times and see what happened to its share price. Vivocom used to be the master of the free warrants and seems like one person - a sifu - is a biggest proponent of free warrants.

I wrote an article about Vivocom, during its most active period.

What is free warrant?

It is printing money. Only one country in this world can do it in large quantities and can get away with it. Uncle Sam. Even then, they are rethinking.


One person used to say this,

You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time.

But it seems that recently, Buffettology is also under fire by some people. Nothing wrong and harmful.

Vivocom is potentially a Hoa...

I do not want to deliberate on a very good discovery on the early release of report by CIMB prior to the quarterly announcement by the company itself. How can it be?

This however also shows one should not trust a company as such and its perpetrator.

If one is to look at the company and at its free cashflow, one should wonder. They raised funds to cover the operating expenses. How is it valued at RM0.60, I wonder.

I cannot remember how many rounds of placements that it has made and the beauty of this company is that it is better at doing this kind of work than Asia Media. It still survives and can still have a valuation of 60+ sen by a respected IB. Just count, how many free warrants it has created.

I have written about Vivacom (formerly Instacom) and I think not much has changed, perhaps even more cruel and unsympathetic over people, but to enrich themselves.

Keuro's warrants: Why 2 years exercise period

I have posted several times about the different traits of a Warrant here. There are cases where warrants act as a sweetener for the shareholders to subscribe to the rights. Warrants can also be used as a tool for companies to raise more funds - not immediate but within the exercise-able period. This is especially true when the warrants is in the money. Usually the exercise period for warrants in Malaysia is either 5 years or 10 years, hence allowing the shareholders time to exercise it.

If it is for the management and controlling shareholders tool as a play, they may issue the warrants to be used as a unit just for sale. Why would one have more dilution to their stocks if they do not meant to exercise it? In this cases, one can see that the warrants have very little value but since it is tradeable and usually it is low in price. Recently, with the trading charges so low, at every 0.5sen, the traders are already profiting. That's precisely what I was pointing at in one of the articles. If the warrants in the eyes of the shareholders is not worth the money, and they do not want to cough up more to pick up more shares, they usually sell. Let the fools have it, why not!

In the case of Keuro's warrants, I believe it is used as a sweetener as well as a tool to raise additional funds - funds that Keuro does not need now but over the next 2 years it will need. As most know Keuro is raising funds for its WCE project which is costing RM5.9 billion now. Usually, these projects the cash needed are not immediate but will be needed on progress over the next 4 -5 years of the project duration. This is precisely why the exercise period is 2 years and not 5 years as if it is 5 years, it may be too late to raise the cash anyway. In 5 years time, Keuro does not need the cash. It needs it earlier. This is also probably why the exercise price is put at a lower price - RM1.18, closer to the parent price.

Whether the warrants will be exercised will depend on whether it is in the money. As it is the exercise price is RM1.18. Today, Keuro's price RM1.10 where it is pretty close to the exercise price.

When the tide gets low ... Part 2

Market will readjust by itself, but many times over the short term it may act irrationally. When times are good, you will see companies issuing bonus shares, splitting, some exercises to make their companies become more attractive - however those exercises do not construe to any particular intrinsic value improvement.

I can talk about bonus shares, shares split but they are just an accounting exercise. Coincidentally, 2 companies that I have invested in Wellcall and Oldtown are succumbing to those - which leads to nothing much. Overall, the most basic thing is the valuation - PE ratio, cashflow and other more fundamental stuffs.

The most recent trick to make their shares even more attractive and yet very misleading is issuance of warrants but without anything else followed by it. During school days, I was taught or learned that warrants act as a sweetener in case the company is doing a rights for example. Issuing warrants here though without any other issuance to tag with (hence pure additional warrants shares) is just an exercise to make the owners rich and speculators seemingly stupid at following their game plan.

The last 2 times I saw that in Instacom and more recently EA Holdings issuing warrants without rights is displeasing. In fact, I feel that SC has to check on this and relook at this policies. Why do companies issue warrants only? Enrich themselves - the owners. There is no real benefit to the company and no real commitment from the largest shareholders. They do not want to commit to putting more monies into the company through rights if the company needs money. What they want is issue the new warrants - push up the shares. Step 2 - sell the warrants to some freshies (new players) whom are just happy to follow the trend.

Don't believe me? Look at Instacom's owners - how long since they issued the warrant to then dispose off those warrants.

EA Holdings is another. One can have a look at the share's trend.

I remember I did provide the warning signs 1-1/2 years ago. My fear during then on EAH was right smack accurate. Chances are the net effect would be more people will lose money if they are followers than those who gained from the speculation. You can see it through the company. But yet gambling is into many peoples blood. They don't do the check first, then invest.

Seriously, the way the market is being treated and approached, it is getting dangerous. Another example, Sumatec - a company which has nothing but a MOU with a vague oil and gas business proposition but yet may be worth close to RM1 billion is just insane!

Anything fishy here?

Sometimes you can be afraid if there is an abrupt change in auditors. And in this case it is really sudden given the circumstance as reported. And the guy who has nominated for the new auditor has been selling in large quantities.

Is Instacom worth it OR another mediocre ACE?

I can say that I am happy to see companies (as I had some prior engagement with them) like Instacom and OCK have successfully gone to the ACE market, the second through a direct listing while Instacom had done a reverse takeover of I-Power. To me, I-Power (don't bother analyzing) is already a company which will find it tough to move forward, hence letting go while sharing some bits of another company's success should be the way to go. Otherwise, our ACE market would be a joke with a long list of failed companies.

However, my praise would have stopped here as it is difficult for me to move forward with saying nice things except for that I am happy. Why? If my blog is about value investing with good, strong companies - the industries that Instacom and OCK are in really makes me think. Telecommunication is a great industry - but as I have said before, only for TM, Maxis, Celcom and Digi - fullstop.

Before we really think hard and try to find a gem of a telco based business, see below.

Look at the ones which I have boxed up in Red. To me, these companies are finding it hard to do business as they are being squeezed in terms of margin by the Telcos, while continuing to finance them - indirectly.

What does Instacom do for a living? It is an engineering cum construction company - doing things that successful telcos do not want to do - i.e. the dirty jobs - you may say doing dirty jobs should be profitable - hardly until now especially your clients are telcos.

So if you ask me, should I-Power allows itself to be RTO-d by Instacom? Yes. Should we invest into Instacom? Wait a second, and think. See if the below companies are successful and used as a benchmark for your investments? If not, take a pass and just be happy that there's life after I-Power.