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Bonds issued with
detachable warrants are common in Malaysia. The issuer offers the entire
issue of bonds with warrants at face value to a primary subscriber. The
primary subscriber subsequently detaches the warrants and sells them to
shareholders of the issuer in the secondary market. The bonds themselves are
distributed to institutional investors.
Bonds with warrants have low
coupon rates and are sold at a discount to yield the rate of return required
by investors in the secondary market. A warrant gives the holder the option
to purchase a specified number of shares at a preset exercise price and
within a certain time period (exercise period). The exercise price is the
amount the warrant holder has to pay in order to convert the warrant into an
ordinary share.
For investors, it is attractive to have the option to buy shares at pre-set
prices. For the issuer, bonds with warrants allow the issuer to raise money
twice: first through the sale of the bonds and later, when the warrants are
exercised.
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