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| BULL ELS |
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Bull ELS is a short-term structured warrant that allows investors to buy underlying shares at a discount to the prevailing share price on offer date and earn interest on their investment
The payout for Bull ELS depends on the performance of the underlying shares at expiry
Bull ELS is an ideal investment product for investors:
- who want to earn relatively higher interest rates (5% to 10%) than the rates of ordinary time deposits; and
- who want to buy the underlying shares at a cheaper price (often 5% lower than the prevailing market price on offer date)
However, investors have to accept the risk of repayment in the form of underlying shares, the value of which may go below the purchase price i.e. Exercise Price
The risk of buying a Bull ELS is similar to the risk of buying shares
The tenure of Bull ELS is between 28 days and 2 years
Sometimes, Bull ELS is referred to as Discount Certificates or Reverse Convertibles
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| Key Features of Bull ELS |
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| Terms |
Description |
Example |
| Underlying Shares |
Ordinary share |
IOI Corp Berhad |
| Spot Price |
Closing share price on price fixing Date |
RM7.05 on 26 Nov 2007 |
| Exercise Price |
Often 5% discount to Spot Price |
RM6.70 |
| Issue Price |
Subscription price |
RM6.57 |
| Payment Date |
Date on which investors make payment to CIMB |
29 Nov 2007 |
| Expiry Date |
Date on which Bull ELS expires and settlement of Bull ELS shall be
based on closing price of Underlying Shares
Cash settlement
If Closing Price of underlying shares >= Exercise Price
CSA = No. of units x Exercise Price
Physical settlement
If Closing Price of underlying shares < Exercise Price.
Investors shall receive the number of underlying shares equivalent
to number of units of Bull ELS held on Expiry Date
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25 Jan 2008 |
| Settlement Date |
Date on which cash is paid or Underlying Shares are delivered to investors |
28 Jan 2008 |
| Yield to Maturity ("YTM") |
The annualised yield from Payment Date ("PD") to Settlement Date ("SD")
YTM = ((Exercise Price - Issue Price) / Issue Price) x (365 / (SD-PD))
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12.04% p.a. |
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| Example |
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| Offer Date >> |
Payment Date >> |
Expiry Date >> |
Settlement Date >> |
Investor subscribes for 10,000 Bull ELS on IOI Corp share at issue price of RM6.57
Subscription amount =RM65,700
Spot price = RM7.06
Exercise price = RM6.70
Issue price = RM6.57
Annualised yield = 12.04%
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Investor pays the Subscription amount of RM65,700 |
If closing price < RM6.70
on Expiry Date, investor will receive 10,000 IOI Corp shares
If closing price >= RM6.70 on Expiry Date, investor will receive RM67,000
= Subscription amount + interest
= RM65,700 + RM1,300
= RM67,000
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CIMB pays cash or deliver shares to investors |
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| Benefits of Bull ELS |
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- Investor earns high yield between 5% and 10%
- Bull ELS is generally a short term investment product i.e. less than 6 months
- Investor subscribes Bull ELS at a discount to the investment amount
- An alternative buying strategy for investor who wants to buy the Underlying Shares at a cheaper price i.e. 5% below the Spot Price
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| Example |
| An investor wants to buy 10,000 IOI shares at RM6.70. However, the current market price is RM7.05 |
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| Buying Strategy |
Conventional Strategy
- Earns FD yield (3% p.a.), prior to payment
- Leaves order with stockbroker to buy 10,000 IOI shares at RM 6.70
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Bull ELS
- Buys Bull ELS with an Exercise Price of RM6.70, which is 5% lower than RM7.05
- If closing price of IOI shares on the Expiry Date is above or equivalent to the Exercise Price of RM6.70, the Investor earns Bull ELS yield of 12.04% p.a.
- If closing price of IOI shares on the Expiry Date is below the Exercise Price of RM 6.70, the investor will receive 10,000 IOI shares at the price of RM6.57 as originally intended
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