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CLLN Carillion Plc

14.20
0.00 (0.00%)
28 Mar 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Carillion Plc LSE:CLLN London Ordinary Share GB0007365546 ORD 50P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  0.00 0.00% 14.20 - 0.00 00:00:00
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
0 0 N/A 0

Carillion Share Discussion Threads

Showing 4026 to 4050 of 12450 messages
Chat Pages: Latest  162  161  160  159  158  157  156  155  154  153  152  151  Older
DateSubjectAuthorDiscuss
17/1/2017
10:04
Convertible bond provides the investors an income by paying them interest. Buying a convertible bond similar to buying a bond with a call option. MRW as an issuer who sells the bonds to raise money with an interest offer to the buyers (the part of bond) and an option to convert the bond for shares in an agreed price at the maturity of the bonds (the part of call option)If the bond holder decided to convert the bonds to shares eventually. The issuer issues more shares or gets shares from the reserve. The bond holders get their shares and the issuer has its debt erased. Happy partners!I believe the shorting operation will be familiar to all the investors on the discussion board. So, no further explanation will be provided.
kcsham
17/1/2017
09:44
Lord Gnome - you are right, if the shorters and the holders of the convertibles are not the same institutions, the operation is not called convertible arbitrage.
kcsham
17/1/2017
09:29
But if the shorters and the holders of the convertibles are not the same institutions, it isn't happening. There is no convertible arbitrage.
lord gnome
17/1/2017
09:24
Therefore, nobody should try to label Convertible Arbitrary as a guaranteed winning strategy in investment.
kcsham
17/1/2017
08:59
Convertible arbitrage involves the simultaneous purchase of convertible bond and the short selling of the same issuer's shares, MRW is the issuer in our case. As I said there is no guaranteed winning formulae in investment or, in fact, in anything in our life. In early 2005 many convertible arbitrageurs suffered losses when the credit of General Motor was downgraded at the same time Kirk Kerkorian was making an offer for GM's stock. Since most arbitrageurs were long GM debt and short the equity, they were hurt on both sides. Going back a lot further, many such "arbs" sustained big losses in the so-called "crash of '87"Some of the risks are listed on the page 6 of the document posted by M4tinu HTTp://www.aima.org/filemanager/root/site_assets/canada/publications/strategy_paper_-_convertible_arbitrage_english_.pdf The risks mentioned are extracted as follows:"The following are the key risk factors of a convertible arbitrage strategy: 1. Credit: The majority of CBs are below investment grade or not rated, so there is significant default risk. Much of this risk is hedged via short stock positions, but managers with a relatively low hedge ratio may need to hedge credit risk using credit default swaps (CDSs). 2. Interest Rate: Longer maturity CBs are sensitive to interest rates, and while short stocks are a natural hedge, lower hedge ratios may require additional protection. 3. Call: CBs are often bought at premium prices, so call risk generally guarantees a loss on the position as the bond will be called at par. Call risk may diminish as interest rates rise. (Bond indentures typically include protection against other company-specific events, such as mergers and dividend increases.) 4. Manager: Managers may incorrectly value a CB and/or short an incorrect amount of stock. If valuations are wrong and/or credit risk increases, the bond floor could be reduced or eliminated. (Note: Manager risk also includes the firm's operational risk.) 6 Ibid, Page 23. Convertible Arbitrage Strategy Paper © 2006 AIMA Canada 5. Leverage: Borrowed funds magnify returns from the generally stable relationship between the long bond and the short stock. However, borrowed funds also magnify the risk of losses. 6. Liquidity and Execution: The manager's ability to enter/exit a position with minimal market impact directly affects profitability. 7. Stock Loan: An effective hedge depends on how reliably and cost-effectively shares can be borrowed and sold short. A prime broker well suited to the manager's particular market helps to ensure sound trade execution and secure stock loan. 8. Counterparty: Using a large and well-capitalized prime broker assists in minimizing counterparty risk. 9. Basis Risk: Since hedge funds are thought to hold more than 60% of the outstanding convertible bonds in the U.S., there is a potential lack of liquidity in down markets. Hence, there is a risk that all CB prices may depreciate together regardless of the underlying CB valuations. "
kcsham
16/1/2017
14:50
RCTurner,

We are talking at slightly crossed purposes. Yes, I agree the shorters have made money. I was actually referring to the company itself which I still belive could have a good future for its shareholders.

jaf1948
16/1/2017
14:07
I suppose the question is: when will the shorters take their profit? Sometime before Dec 2019 :)
m4rtinu
16/1/2017
12:20
their profit so far is of the order of £80m
rcturner2
16/1/2017
12:19
er, the price has gone from over 350p to under 250p while they have shorted it

they are well in the money

rcturner2
16/1/2017
11:43
As long as the company is able to continue to pay dividends at the current level the shorters have not been proved right.
spoole5
16/1/2017
10:19
RCTurner2 'The shorters have been proved right.'

Not yet !

jaf1948
16/1/2017
09:02
Good exchange of views here. Sorry to post this link again, but scroll down to 2nd to last page. There is a bar chart showing an example of Convertible Arbitrage. In this example, the cost of the shorting is small relative to other profit made in the deal. I haven't checked all the details to see how close it is to CLLN situation, but it shows that the cost of the dividend on the borrowed shares need not be a deterrent.

Cheers MU

m4rtinu
16/1/2017
08:11
The shorters have been proved right.
rcturner2
14/1/2017
16:47
Eventually the shorters will either be defeated or proved right though. The company will either carry on chugging along with modest growth and a decent dividend increasing year on year or have to cut the dividend or raise capital to get the debt under control.
spoole5
14/1/2017
14:16
Poacher45 spot on. I have said for months that this share price is manipulated but have been criticised by other posters. It is obvious. If the shorters are so clever as some here seem to think then whatever they knew 18 months ago would have surfaced by now. The share price is so low because of them and the negative smear that their position gives the company.
lab305
14/1/2017
09:49
At the beginning of December UBS which had a price target of 230p buys a load of shares at a higher price than 230p. The share price was 256p the day before the update. We are nearly all agreed the update was good. Not so for UBS it immediately sells all its shares and cuts the target price to 195p. Deutsche bank joins in and they succeed in making everybody think this must have been a terrible update and the price sinks to 230p. They have put doubts in peoples minds and in my opinion manipulated the share price for there own ends. Once again I must state this is only my opinion.
poacher45
14/1/2017
09:49
I tend to agree with Gnome, but I have no evidence of who is or is not shorting. But I thought convertible arbitrage was really a hedge fund activity - it's quite a complicated strategy to actually implement. So are "the institutions" really being hedge funds, are they being that sophisticated? Or was 2.5% really an acceptable interest rate? Answers on a small postcard...
edmundshaw
13/1/2017
23:07
We seem to go round in circles time and again with this issue. We have convertibles, fact, which are currently well out of the money. We also have high levels of shorting, fact, which must correct sooner or later (opinion). I don't, and never have bought, the arbitrage argument. The convertible holders and the shorters are not the same institutions.
At present the shorters have the company share price by the balls. If you think the company is safe and strong, however and that the shorters are wrong, then at this price, the shares are a gift.
I have a full allocation of CLLN which I hold for the growing dividend. I have no fears for my investment.
I am annoyed that institutions have lent stock to the shorters. My annoyance is somewhat mollified by the fact that the shorters must pay the dividends due to the institutions from whom they have borrowed stock.
One argument for going short is the pension deficit. In my view this is an artificial actuarial creation which is nothing more than a reflection of the current low interest rates. Once rates (and therefore gilt yields) start to rise, some if not most of the deficit will evaporate. That is my belief.
We have an excellent company at an absurdly low valuation and offering a safe above average yield. Buy and hold and all will be well.

lord gnome
13/1/2017
22:00
Interesting scenarios, but when I asked the question of senior management, I was told that the holders of the convertibles are not the US Hedge Funds who are shorting the stock.
I have no reason to believe that I was not told the truth. The Company must know who owns the convertibles by reference to the share register.

redartbmud
13/1/2017
21:34
He said "kind of short for free". What that means is they short as a hedge such that they win whether the price goes up or down (mostly). The "kind of" is that on average they will make less profit (though with supposedly less risk). Costs aside it is still roughly a zero sum game (though see below), so in that sense you are right and it is not free.

But if you are big enough to buy convertibles at scale and then concurrently short the underlying stock, the idea is that in most scenarios (i.e. except a small price window or the other party going to the wall) it is generally a guaranteed profit. And in maintaining a market neutral position (the standard if rather unimaginitive policy where you don't care much which way the price to moves), that profit can actually be improved when there is price volatility in the stock (by delta hedging). It can go very wrong if there are serious market downturns, as delta hedging gets tricky (the second order derivative of the equation for the change in value of the option gets too big to ignore and difficult to manage) and also occasionally the "logical" relative pricing of the convertibles and stock can break down.

The dark side of it is that profits normally increase as the share price drops (as the short gain outweighs the underlying convertible bond value decline). Which is where I worry a bit: can the arbitrageurs manipulate stock declines in ways I do not understand??

edmundshaw
13/1/2017
19:22
RC - Your comment: 'The holders of the bonds can kind of short for free if they think the price will fall, since in any price raise they get the rise in value of the bonds.'I don't really know what to say. There is nothing for free in this world, just forget it. Shorters need to pay an interest on the money that they loan to cover the cost of their operation - shorting. Of course if the shorters believe a particular share will go down in price, they short the share and the price of the share does fall more than enough to cover their cost, they make a profit There is nothing different from what will happen to normal investors. If you buy it low and sell it high, you make a profit. If you want to short any share, you may open a spread betting or a CFD account that provides you this facility to short shares. This may help you to understand how this operation works. However, my statement is only for discussion purposes and it is not a recommendation for you to carry it out at all.
kcsham
13/1/2017
18:04
The convertibles may well be part or even all of the shorting. People have lent money to CLLN at 2% interest with a conversion price of 399p, which is never going to happen, so the company will be paying cash not shares. The holders of the bonds can kind of short for free if they think the price will fall, since in any price raise they get the rise in value of the bonds. So I suspect that this is a bit of a free lunch for hedge funds. They loan the money and short the stock, they really only lose if the share end up at somewhere close to the 399p, but I suspect that is never going to happen either.
rcturner2
13/1/2017
17:31
edmund,

Are you therefore saying that the convertibles are nothing to do with the large shorting of CLLN stock ? If so, what do you think the root cause is ?

jaf1948
13/1/2017
16:18
Oh, the convertibles. I already know about them. It is the company that has the option of repaying the debt in cash or new shares.

Convertible arbitrage I understood at one point quite well (I have not looked at them recently), it is a kind of hedge based on the conversion option that guarantees to make money in MOST outcomes (not all) and reduce losses in others. The downside is that (i) you have to pay for shorts and (ii) you reduce your potential gain. There is no free lunch after all - at least not with convertible arbitrage.

The convertibles covered around 10% of the shares at issue, so there could be dilution if the company decided to issue new shares on expiry (2019). But all this is old, known information.

edmundshaw
13/1/2017
13:28
From the Times
Shares in its FTSE 250 parent company have fallen by more than a fifth over the past 12 months, rewarding short-sellers that have bet against the company. There are 16 investors holding a combined 21.26 per cent short position, according to regulatory figures.

This is to do with the 170,000,000 loan stock which I think is do to be repaid in 2019. The investors are only being paid 3%. So why have the institutions lent them the money? Because Carillion gave them a sweetener. It could be considered a call option if the share price goes above £3.95 they still can covert this loan stock for an ordinary share at £3.95. However at the moment with the share price standing at £2.35 it has to be considered a put option because if the loan stock was repaid today the investors could buy new shares for £2.35. This is my understanding of the situation.

poacher45
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