30 years: Equity capital markets
In this discussion of warrants, James touches on the details of warrants and explains Siemens’ 2012 issuance.
In this discussion of warrants, James touches on the details of warrants and explains Siemens’ 2012 issuance.
Finance Unlocked is the video learning platform built for finance professionals.
This content is also available as part of a premium, accredited video course. Sign up for a 14-day trial to watch for free.
2 mins 59 secs
A warrant in the equity-linked market is usually a call option. This is an instrument with a fixed maturity that offers the buyer the chance to pay a fixed price for shares at a premium to the existing share price.
Key learning objectives:
Define a warrant
Explain how a warrant is priced
Discuss how a bond plus warrant package can be traded separately and why it may be desirable.
This content is also available as part of a premium, accredited video course. Sign up for a 14-day trial to watch for free.
American Option – An option that can be exercised at any time before the expiration date.
European Option – An option that can only be exercised at the expiration date.
Considering the following:
This is mostly seen in the equity-linked market. In theory, the 2 parts can be traded separately as a straight bond and an independent warrant.
With the mark-to-market, the value of warrants is recognised through changes in the underlying share price, to avoid this, issuers may issue a bond in their desired currency and have a warrant in their ‘functional’ currency. This meant that the conversion of the warrants would be based on its fundamental share price performance rather than being influenced by changes in FX rates.
Siemens (a German engineering company) wanted USD debt financing – however, its functional currency was Euros. As a result, they issued a $3bn bond with Euro-dominated warrants in 2012.
This content is also available as part of a premium, accredited video course. Sign up for a 14-day trial to watch for free.
06:02
13:19