Guotai Jun'an: covered warrants are not financing instruments

Yesterday, Baosteel's warrants fell 7.80%, with 522 million transactions, while the underlying Baosteel shares fell 1.55% all over the world. The implied volatility of warrants declined slightly, and the hot speculation was on the ebb.

With the listing of Baosteel's warrants, investors have a deeper understanding of the warrants, but also have many misunderstandings. For example, they believe that the warrants have withdrawn market funds, and that covered warrants issued by securities companies are financing for listed companies. In fact, this is due to the confusion of the concepts of equity warrants and covered warrants.

Warrants can be divided into equity warrants and covered warrants according to different issuers. There are three main differences between the two:

(1) Purpose of issuance: Equity warrants are issued by listed companies for financing; Covered warrants are designed to meet customers' investment needs.

(2) Issuer: Equity warrants are usually issued by listed companies themselves; Covered warrants are issued by a third party (usually a reputable securities firm, etc.) independent of the issuer of the underlying assets.

(3) Dilution effect: when the equity warrants are due for execution, the listed company issues new shares and sells them to the warrant holders at the exercise price; When the covered warrant expires, if

Generally speaking, the reason why covered warrants are called covered warrants is that their issuers have sufficient underlying stocks in their hands to allow warrant holders to exchange shares at maturity. In terms of Baosteel warrants, Baosteel JTB1 can be regarded as a covered warrant issued by Baosteel Group, but compared with Baosteel covered warrants issued by securities companies in general, although the terms may be the same, its operation mode will be very different.

First, the transaction price. For the former, due to various reasons, the price deviates from the theoretical value by a large margin, but for the latter, securities companies will be fully able to provide liquidity and keep their prices within a relatively reasonable range because they can continue to issue.

Secondly, the impact on the trading volume of Baosteel shares. Baosteel Group owns more than 10 billion shares of G Baosteel. They do not need to buy the underlying stock for the issued Baosteel JTB1 to avoid risks. After issuing Baosteel covered warrants, securities companies will use a lot of funds to buy and sell Baosteel shares to avoid their own risks. For example, if the actual leverage ratio of the issued warrants is 3, a total of 200 million warrants will be issued, A total of 600 million yuan will be invested in the stock market to buy Baosteel shares, which obviously does not withdraw market funds, but will bring a lot of new funds. And with the continuous hedging transactions of the issuer, the transaction activity of Baosteel will be greatly improved. Neither the equity warrant nor Baosteel JTB1 has this effect.

Finally, the contact with listed companies. Equity warrants are financing for the issuing company of the underlying assets, while Baosteel covered warrants issued by securities companies are only based on Baosteel shares. In addition, they have no relationship with listed companies, let alone financing for Baosteel shares. In fact, for a certain underlying asset, all eligible financial institutions can issue many covered warrants with the same or different terms.

Author: Guotai Jun'an