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ISHTIAQ AHMED AH-526270 Topic: Reasons for issues

warrants and Convertibles by the Corporation

Introduction to Topic
Warrant: Security that entitles the holder to buy the underlying stock of the issuing company. Types of warrants: Equity warrants Covered warrants Basket warrants Index warrants Wedding warrants Detachable warrants Naked warrants

Warrants
Uses of Warrants: Portfolio protection Low cost Leverage Risks: Time decay Time value

Introduction to Topic
Convertible bond: Bond that the holder can convert into shares of common stock in the issuing company. Resolving common project problems Types of Convertible bond: Exchangeable Mandatory convertibles Mandatory exchangeable Contingent convertibles Reverse convertible securities

Uses of Convertible bond

Uses for investors:
Issued offering a higher yield than on Shares. Safer than preferred or common shares. Convertible bonds can provide the possibility of high equity-like returns. They provide asset protection.
Uses for issuers: Lower fixed-rate borrowing costs. long-term borrowing Tax advantages.

Reasons for Issuing Warrants and Convertibles

Carries a lower coupon rate Reduce agency costs Allow young firms to delay expensive interest costs Used by smaller firms with high growth rates and more financial leverage. Companys short term need for money/capital/funding

Practical Study of the Organization

Practical Study of the Organization with respect to the Issue

Why Bahria Town Issue Warrants and Convertibles: Companys short term need for money/capital/funding. Issued to existing share holders more particularly to promoters to increase their stake. Loans higher rates of interest. Reduce agency costs.

SWOT analysis
Strength: Public Trust Industry leader Good Reputation Weakness: Artificial Demand Creation Just hitting the main areas of the country Low return due to Power problems

SWOT analysis
Opportunities: Issue warrants with Low Price Newly developed areas Threats: Economic condition of Pakistan High cost due to power sector Problems

Recommendation
Should have to issue warrants with low price. Should have to target other small cities of the country. Should have to take some strong steps for cost reduction.

Conclusion
I have concluded that, A warrant is a security that entitles the holder to buy the underlying stock of the issuing company at a fixed exercise price until the expiry date. Convertible is a type of bond that the holder can convert into shares of common stock in the issuing company. Companys short term need for money/capital/funding is done through convertible and Warrants.

Conclusion
Convertible and warrants which are converted into equity shares at a definite time are attractive investment opportunities available to investors also. Bahria town also issue warrants for its short/Long term needs. Bahria town can enhance its business by issue warrants with low price.