Saturday 5 May 2012

Calculating Theoretical Ex-All Price (TEAP)

MBM Resources Berhad is issuing:

i) 3 bonus shares for every 10 existing shares held
ii) 3 rights shares at RM1.42/ share for every 10 existing shares held
iii) 3 free warrants for every 10 existing shares held

All the above go ex on 21 May 2012.

For the avoidance of doubt, the bonus shares to be issued pursuant to the proposed bonus issue will not be taken into account in determining the rights shares and with warrants to be issued to the entitled shareholders

How to calculate the TEAP?

Click on the image to enlarge

Say based on the closing price of RM 5.24 on 4 May 2012, the TEAP would be RM 3.48 (round down)

The share price given in the announcement dated 2 May 2012 was RM 4.96, so the TEAP given was RM3.33


  1. For discussion purpose here. Can you value the ex-all price like that? You can do that for the right issue, but for the free warrant, I think you have to use the option pricing and find out what the value of this free warrant is, and deduct from what you have got for the right issue. Warrant holders have the right but not the obligation to convert to the underlying share. who would want to convert the warrant to shares when you have to pay 10.67 (3.20*3.33) to convert 3.33 warrants to one share when the share price is only at 4.96 now? I wonder if Bursa uses your method to get the ex-all price like that. What do you think?

  2. The conversion ratio of warrant is usually 1:1

  3. So you pay only RM3.20 to convert 1 warrant into 1 mother share

  4. Yeah, your working is right and mine was wrong. However, I think the ex-all price should be higher than what is computed using your method. This is because for the free warrant, only the "intrinsic value" is captured, not the "time" value, which could only be captured using an option pricing model> agreed?

    1. Let confirm again whether my formula is correct when the stock goes ex...

      Your point is valid here... Maybe Black-Scholes formula is too complex to adopt...

  5. Closing price before ex-date: RM4.68
    TEAP RM3.19

  6. For the calculation of the theoretical ex-all price, what if the warrants Exercise Price is higher than the closing price?

    In MBM's case, the exercise price of 3.2 is less than closing of 4.96 when announcement was made therefore it would be 'in the money' and therefore exercised and the company would receive the cash.

    If it is higher, and therefore 'out of the money', it wouldnt be exercised?? How would you calculate....

    1. removed (warrant exercise price x 0.3) in the numerator, and remove free warrant ratio 0.3 in the denominator. Just assume no dilution from the warrants