Warrants target second-tier firms

The Hong Kong market saw at least three covered call warrants issued yesterday, two of which were on second-tier shares.

Robert Fleming & Co launched 110 million call warrants on property-investor Pearl Orient Holdings.

The warrants are the first on Pearl issued in Hong Kong following the lowering of the minimum free-float requirement to $4 billion.

Richard Williams, director of global derivatives at co-manager Jardine Fleming in Hong Kong, said his firm was taking advantage of the new regulations to launch a warrant on a smaller, possibly more exciting firm.

The one-year warrants carry an exercise price of $2.60, a premium of 18.8 per cent and a gearing of 5.3 times.

Pearl Orient's share price reacted to the warrant by rising five cents to close at $2.65 yesterday.

Shipping firm Cosco Pacific was the subject of 500 million call warrants.

However, because the firm's public float does not reach the $4 billion minimum, Peregrine will list the 18 month warrants in Luxembourg.

The warrants carry a premium of 21.5 per cent, a gearing of 4.3 times and a strike price of $6.

Cosco shares added five cents to $6.10 yesterday.

Meanwhile, Merrill Lynch has launched 75 million warrants on Hutchison Whampoa.

The one-year warrants have a strike price of $39.50, gearing of 3.98 times and a premium of 8.1 per cent.

Hutchison's share price, however, did not react favourably to the news, falling 20 cents to end at $47.60.