PAPER products firm UPP Holdings Ltd last October proposed a bonus issue of warrants in order to "reward shareholders for their continued participation in and support for the company". Approval was duly granted at an extraordinary general meeting in January and as a result, a total of 836.7 million warrants were issued which were then listed on Feb 16. This is an interesting instrument that certainly warrants a closer look.

The UPP warrant cannot be exercised during the first six months of its life, so exercise can occur only from Aug 16 this year. In keeping with many others in the market, it is a three-year warrant, so expiry is in February 2020, which means holders have plenty of time for their warrants to perform.

The exercise price is S$0.37 versus the shares which currently trade at S$0.29, so the warrants are "out-of-the-money". This means that at S$0.036 per warrant, the conversion premium is a relatively high 40 per cent. In return, buyers at the present level enjoy a high gearing of about 8.1 times.