SIA went ex-rights yesterday
and there was some unusual and bizarre movement in its share price wiping out the total value of SIA Daily Leverage Certificate (DLC) 5 X Short which has been suspended as
the underlying price has appreciated more than 20% from their theoretical ex-rights
price (TERP) of S$3.71 which means that losses are now in excess 100% for this
leverage product. The value of TERP was derived by Soc Gen, the market maker
for DLC using a methodology which includes the rights share component based on
the issuance of approx. 1.78bn shares and the Mandatory Convertible Bond (MCB).
The retail investors who bought the SIA 5XShort DLC were
the amongst the worst casualties, they lost all their investments. They are crying foul because they had bought
the SIA 5XShort DLC based on the TERP that was derived by SIA which amounted to
$4.16 as at Thursday closing price of $5.91.
Investors who bought the 5Xshort DLC had bet that SIA could
continue to be weak given the poor fundamentals as a result of COVID 19. SIA
share traded in a weird fashion yesterday
from a low of 4.15 to a high of 5.05 before closing at 4.40 and strangely it had
closed at 4.62 at 5 pm at the closing bell only to be was bashed down to 4.40
at the after hour matching of trade by a big block order. These weird price action leaves traders scratching
their head.
Investors are complaining that there is no transparency and
no level playing field when there are an official SIA derived TERP at 4.16 and
a TERP derived by Soc Gen at 3.71 which is not publish and retail investors
have no privy to the information. Investors content that big gap in the TERP
potentially opens the door to market manipulation because if someone had
information that the TERP is at 3.71 and the markets perceives it at 4.16, it is obvious that the airbags for the
DLC will easily burst resulting in the DLC being delisted. Fuelling more discontent
, if Soc Gen had used the same official TERP at 4.16 investors will have
sufficient time to exit their position and perhaps the airbags wouldn’t have
burst.
One investor actually wrote to SIA Investor Relation and
got this reply:
“With regards to your query, it would not be relevant to
calculate the TERP based on MCBs prior to maturity given the nature and trading
characteristics of both types of securities (e.g. no market quote/price for MCB
prior to issuance compared to ordinary shares traded on an exchange)”
Soc Gen adjusted TERP 3.71 is significantly different from
the announced TERP by SIA at 4.16 . Being a material difference, this should be
communicated clearly to traders of DLCs on a timely basis before the ex-rights
date. The significant difference in the adjusted price create a huge price
disadvantage for those who are holding on the SIA DLC shorts while huge advantage
to SIA DLC long.
What’s going here… its bizarre . At S$4.77 SIA is even higher than the TERP price of S$4.16
base on a pre-ex-rights price of S$5.91. The S$4.77 price would indicate a
pre-ex-rights price of S$7.44!
WoW. Overnight, SIA’s price/share has increased from S$5.91 to S$7.44 which is
an appreciation of 26%!
Many traders are asking me whether there was any conspiracy
behind this weird price movement to flush out all the traders holding the
shorts from the people who had privy information of the adjusted TERP at 3.71. Frankly after having being involved in
promoting DLC with Soc Gen and SGX since its inception, I don’t think there is any malaise but someone
must be held accountable for this confusion which has resulted in huge losses and
loss of confident for derivative product listed on SGX.
All posts and charts are for educational and illustration purposes only