cpecan,why Macquarie would accept the risk associated with...

cpecan,

why Macquarie would accept the risk associated with issuing this warrant on a speculative oiler

I have been asking myself the same question. It seems to leave them heavily exposed. These are the possible answers in order of order of probability:


1. They are offsetting the HDRWMA risk against a WPL put option. If so MBL have probably lost due to the unexpected China deal that pushed up WPL.

2. Last year there were times when the values of HDR and its option were wildly out of kilter. MBL might have made profits from arbitraging. They created this warrant so they could do the same this year, presumably using their superior number crunching to outfox the naive day traders. If this was their strategy it probably failed. 1stly because the warrants were sold on the cheap and secondly the warrants market it not very liquid due to the dearth of sellers.

3. The real counterparty to the warrant is a HDR director who wishes to take some profits up front but does not want to frighten the market through a sell order. The HDR director gets to reduce his exposure without spooking investors.

4. MBL know, or are fairly certain, that a takeover will occur and the warrants will be prematurely terminated, limiting their losses if the wells are hits.

5. MBL issued the warrants to enourage speculative interest in the stock to curry favour with HDR management in the hope that they will be chosen to represent HDR in a takeover bid. The warrants are loss leaders for the mergers and acquisitions department.

Any other ideas? Do you agree with this order of probability?