Bank of China warrants list in Singapore

Three investment banks launched a total of five call warrants on shares of the Bank of China (BOC) in Singapore today, the same day the shares started trading in Hong Kong. The BOC initial public offering (IPO) was the world’s largest in six years, with $9.7 billion raised after the retail tranche was 80 times oversubscribed.

For Singapore investors, Deutsche Bank rolled out two call warrants on BOC shares on the Singapore Exchange (SGX). The two warrants will mature on December 4 and 18, 2006, respectively, with strikes of HK$3.20 and HK$3.50.

The BOC shares, which were offered at a price of HK$2.95 and opened at HK$3.15, ended the morning session at HK$3.375, up 14.4% on the offer price.

“For retail investors in Singapore, it may be difficult to get a piece of the pie in the largest IPO in China,” said Sandra Lee, a vice-president covering warrants in the investment products group at Deutsche Bank in Singapore. “The newly listed Bank of China warrants on SGX by Deutsche Bank make it easy for Singapore investors to get leveraged exposure on this stock.”

Merrill Lynch also issued a call warrant in Singapore at a strike price of HK$3.3, with expiry on December 1, 2006.

Macquarie Bank issued two warrants linked to the BOC shares, with expiries on December 1, 2006 and January 8, 2007 and strike prices of HK$3.45 and HK$3.00 respectively.

“Following on from the strong performance and popularity of warrants over recent Hong Kong IPOs such as China Construction Bank (CCB), we think there will be huge interest in the Bank of China warrants here in Singapore,” said Barnaby Matthews, head of warrants at Macquarie Securities Singapore.

CCB listed in Hong Kong last year in a high-profile IPO that also saw warrants issued in Singapore on October 27 by banks such as Macquarie and Deutsche Bank. The first CCB warrants were listed in Hong Kong on December 5. Many derivatives warrants on Hong Kong-listed stocks have been issued on the SGX before the HKEx. A report by Hong Kong’s Securities and Futures Commission (SFC) puts this down to a requirement by the Hong Kong bourse for a security to be listed for a certain period before it is eligible for derivatives warrants to be issued on it.

Matthews said: “Singapore listed warrants over Hong Kong IPOs enable Hong Kong investors to buy warrants over stocks that are restricted from issuance on the HKEx during the initial listing period. At the same time, they give Singaporean investors exposure to Hong Kong IPOs through the SGX. These benefits are likely to generate strong interest in the BOC issue and in future Hong Kong IPOs.”

But the SFC report also mentioned that trading of warrants on Hong Kong-listed equities in Singapore is often illiquid, and liquidity often flows to the market where the underlying stock is listed.