# CBA PERLS V - what is it?



## johenmo (7 September 2009)

I understand it is an acronym for Perpetual Exchangeable Resaleable Listed Securities.
(“PERLS V”), which are stapled securities comprising:
– an unsecured subordinated Note issued by the Bank’s New Zealand branch; and
– a Preference Share issued by the Bank.

Can anyone explain how these work in plain english?
It'd be appreciated.
Thanks


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## soren_lorensen (7 September 2009)

*Re: CBA PERL V - what is it?*



johenmo said:


> I understand it is an acronym for Perpetual Exchangeable Resaleable Listed Securities.
> (“PERLS V”), which are stapled securities comprising:
> – an unsecured subordinated Note issued by the Bank’s New Zealand branch; and
> – a Preference Share issued by the Bank.
> ...




Johenmo, we do appreciate you anyway, however i can't help here, you will need someone else to explain the perls V


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## johenmo (7 September 2009)

*Re: CBA PERL V - what is it?*

I understand the preference share.  And vaguely understand the note (i'll read some more).  But I don't quite understand why they are bundled together.  And what makes them attractive enough to buy.  CBA obviously expect to come out on top on these.

So if someone can give an outline it'd be aprpeciated.


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## Hyperion (7 September 2009)

*Re: CBA PERL V - what is it?*

This is my understanding:

For the investor:
Debt like returns: floating rate of 3.40% above the bank bill swap rate.
This return is comprised of 70% cash and 30% in franking credits.

Price movements will thus also be similar to debt.

Ranking on insolvency: is like a preference share (i.e. priority is below debt, but above ordinary shares)

Tax: Returns are treated like franked dividends.  Gain or losses on sale are like shares (i.e. capital gains/losses if investor).  NOT treated as a s26BB Traditional Security.


Why does the bank sell them?
Tax reasons
Because the returns are treated as dividends, they can attach franking credits to them, and thus bank pays you less cash, but still provides you a high rate of return (because you get the attached franking credits, which are useless to them)

Even though it counts as equity under Australian tax law, it apparently counts as debt under NZ tax law. Hence they can claim a tax deduction in New Zealand.  (yes, so they attempt to double dip....)

Obviously the ATO doesnt like this, and they are definitely going to litigate.  Luckily for investors, CBA and ATO have come to some agreement where CBA indemnifies you if they get an adverse ruling.  There is some complicated scheme where u can opt out  - but read PDS for more info on that.


Also, because classified as Tier 1 equity by APRA and not debt, then in improves their prudential ratios and make them look like a safer bank (lower debt/equity).


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## gooner (7 September 2009)

*Re: CBA PERL V - what is it?*



Hyperion said:


> This is my understanding:
> 
> For the investor:
> Debt like returns: floating rate of 3.40% above the bank bill swap rate.
> ...




Spot on

The only thing I would add is that CBA expect to call after 5 years, so you get your money back then barring exceptional circumstances. When the majors say they "expect to call" they have always done so.


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## Hyperion (7 September 2009)

*Re: CBA PERL V - what is it?*



gooner said:


> Spot on
> 
> The only thing I would add is that CBA expect to call after 5 years, so you get your money back then barring exceptional circumstances. When the majors say they "expect to call" they have always done so.




Yep, agree with that.

The problem is that sometimes the PDS is confusing because it deliberately makes things uncertain.

E.g. technically the bank has no obligation to pay you anything.  This is because if they were obliged to pay you, then the security might risk falling into the "debt" classfication.

However, these preference share things often have "dividend stoppers" such that if the preference shares dont pay "dividends" then the ordinary shares aren't allowed to pay dividends either.

And everyone knows what will happen if CBA doesnt pay ANY divs on its ordinary shares... hence CBA will pretty much always pay the PERLs if it can...


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## jono1887 (7 September 2009)

*Re: CBA PERL V - what is it?*

whats the current bank bill swap rate?
and what happens if you want to cash out before the 5 years? can you just selll them on the stock market?


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## boofhead (8 September 2009)

*Re: CBA PERL V - what is it?*

BBSW changes daily but it is around the 3.4% mark.

If you want out you sell them on the market like other securities. It's like any other hybrid product.


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## Sir Osisofliver (8 September 2009)

*Re: CBA PERL V - what is it?*



Hyperion said:


> This is my understanding:
> 
> For the investor:
> Debt like returns: floating rate of 3.40% above the bank bill swap rate.
> This return is comprised of 70% cash and 30% in franking credits.




Um this isn't quite right Hyperion. From the CBA website

Distribution Rate (% p.a.) = (Market Rate + 3.40%) x *(1 - Tax Rate) *

They give an example here  https://ipo.comsec.com.au/IPO/Application.aspx?IPOID=39#offerdetails


Market Rate is 3.2800% p.a. + Margin 3.4000% p.a. = 6.6800% p.a. * 0.70 
*Distribution Rate 4.6760%* p.a.


Cheers

Sir O


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## dasmith1973 (8 September 2009)

*Re: CBA PERL V - what is it?*



jono1887 said:


> whats the current bank bill swap rate?
> and what happens if you want to cash out before the 5 years? can you just selll them on the stock market?




Yes you can sell them out on the market like a share and you should note that these issues are not as safe as made out to be by the bank.  Look at the current price of PERL3 at $169, at one stage down to 130's..that's one hell of a drop & a real loss if forced to sell out.  One of my family members has these 'on advice of the bank' which really peeves me, I think that is a massive conflict of interest & a trap for unwary if you don't consider the downside.

This is a good article by Huntleys explaining them further...

http://www.morningstar.com.au/s/pdf/newsletters/YMW_090611_Hybrids_free.pdf


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## johenmo (8 September 2009)

*Re: CBA PERL V - what is it?*



dasmith1973 said:


> ...you should note that these issues are not as safe as made out to be by the bank.  Look at the current price of PERL3 at $169, at one stage down to 130's..that's one hell of a drop & a real loss if forced to sell out.




"not as safe" - that was my feeling.  Thanks everyone.  Another thing I can add to the pile of learning.
Cheers


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## Calliope (8 September 2009)

*Re: CBA PERL V - what is it?*



dasmith1973 said:


> This is a good article by Huntleys explaining them further...
> 
> http://www.morningstar.com.au/s/pdf/newsletters/YMW_090611_Hybrids_free.pdf




That article was very interesting da. I note they will soon be running an article on a range of hybrids. It would be appreciated, if when they run the article, you could post it on the "Hybrid Securities" thread.

Cheers, Calliope.


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## boofhead (8 September 2009)

*Re: CBA PERL V - what is it?*

Sir Osisofliver: Isn't that approximately what Hyperion was saying? Grab a calculator.

dasmith1973: Earlier PERLS had a smaller margin which in the lower BBSW rate of the current market has a greater impact. Other hybrids with a healthy margin issued by companies with a greater feeling of security (AMP) are trading above issue price. I'm sure if the earlier PERLS products had a higher margin they would be trading much better. That said the recent PERLS is not as healthy margin as AMP but is expected to be fully franked.


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## drlog (8 September 2009)

*Re: CBA PERL V - what is it?*

I am very new to all of this.

Let's say the market value of PERLS V drops to $150. I can purchase some on market at $150 and on 31st of October 2014 I will either get $200 or I will get $200 + 1% of CBA ordinary shares?

Actually, CBAPB (PERLS IV) are currently trading at $188ish. If you buy them, it will be the same deal on 31st October 2012? That's around a 6.3% return plus the remaining distributions, right?


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## Bill M (8 September 2009)

*Re: CBA PERL V - what is it?*



drlog said:


> I am very new to all of this.
> 
> Let's say the market value of PERLS V drops to $150. I can purchase some on market at $150 and on 31st of October 2014 I will either get $200 or I will get $200 + 1% of CBA ordinary shares?




Yes you can but that probably won't happen. If anything the capital value ($200) will probably rise due to the fact of the healthy 3.4% interest rate spread on the product. All the other PERLS offers were much lower.



> Actually, CBAPB (PERLS IV) are currently trading at $188ish. If you buy them, it will be the same deal on 31st October 2012? That's around a 6.3% return plus the remaining distributions, right?




I don't know the dates but Yes, just remember though that the interest rate spread is only 1.05% on this product so it means lower income.

Perls 4 BBSW + 1.05% = Approx 4.4%

Perls 5 BBSW + 3.4% = Approx 6.8%           What you need to work out is if the capital gain on the Perls 4 brings it up an end result to what Perls 5 will give you.

About Perls 5, from the replacement prospectus dated Sept 7th. Page 5.

It says *the general offer which was to have been open to other Australian residents, will now not proceed*


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## Hyperion (9 September 2009)

*Re: CBA PERL V - what is it?*



Sir Osisofliver said:


> Um this isn't quite right Hyperion. From the CBA website
> 
> Distribution Rate (% p.a.) = (Market Rate + 3.40%) x *(1 - Tax Rate) *
> 
> ...




I was referring to the "total return".

E.g. if BBSW is 6.6% and margin is 3.4%, then your "total return" is 10%.

7% is in cash, and what you/the prospectus refers to as the "distribution rate"
3% is in franking credits.

But the 10% number is more important, because any investor would be indifferent between 10% in cash, and 7%cash + 3% franking credits.


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## YELNATS (9 September 2009)

*Re: CBA PERL V - what is it?*



Bill M said:


> About Perls 5, from the replacement prospectus dated Sept 7th. Page 5.
> 
> It says *the general offer which was to have been open to other Australian residents, will now not proceed*




That's significant. I was of the opinion that there would be a massive scaleback on this new product issue, which put me off it a bit.

Now that it is apparently only available to current CBA ordinary shareholders plus holders of previous PERLS, the scaleback may not as great, which makes it more attractive to those that qualify.


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## YELNATS (9 September 2009)

*Re: CBA PERL V - what is it?*

As per CBS'a SEpt 7 media release;

Quote
Commonwealth Bank of Australia (the “Group”) has successfully completed the bookbuild for the offer of its Perpetual Exchangeable Resaleable Listed Securities (“PERLS V”) to eligible institutional investors and brokers to the offer.
The offer of PERLS V has been extremely well received, with strong demand from brokers to the offer resulting in the bookbuild attracting just over $3bn in demand. Given the level of support for the offer, the Group has decided to allocate $1.5billion of PERLS V under the bookbuild1.
Unquote

Based on the above it looks like at least a 50% scaleback under the institutional investors and brokers part of the offer.

The retail part of the offer is due to close October 2nd, but if you are going ahead, it may be a good idea to get in asap, particularly if CBA decides to close the offer earlier.


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## bylife (10 September 2009)

*Re: CBA PERL V - what is it?*

First of all, there is information of PERL IV from web search,



> PERLS lack lustre
> 
> The glossy pamphlets have been sent out and the brokers are on the phones. Those marketing efforts, combined with the featured rate of 7.4% and the magnificent Commonwealth Bank brand should all but guarantee the bank gets the $850m it is seeking through the issue of PERLS IV. We recommended the original PERLS (since redeemed), but the latest offering falls well short of the mark.
> 
> ...




The advise for PERL IV is avoid. Hope it is helpful to consider PERL V.
I will figure it out.


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## bylife (10 September 2009)

*Re: CBA PERL V - what is it?*

More, PERLS should belong to kind of Bond, because the distribution is similar as interets.


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## 888 (26 September 2009)

johenmo said:


> I understand it is an acronym for Perpetual Exchangeable Resaleable Listed Securities.
> (“PERLS V”), which are stapled securities comprising:
> – an unsecured subordinated Note issued by the Bank’s New Zealand branch; and
> – a Preference Share issued by the Bank.
> ...




the keyword is "unsecured", so if things go wrong, byebye money?


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## gooner (27 September 2009)

888 said:


> the keyword is "unsecured", so if things go wrong, byebye money?




Correct. But then we would be talking about CBA being in default and all of ordinary shareholders funds being wiped out. From an Australian perspective, CBA is probably too big to fail and in the event of a disaster would likely be taken over by another bank. However, possible in this scenario that all equity holders would lose 100% and hybrid holders would also be forced to take a loss.


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## Calliope (28 September 2009)

Comsec's broker firm offer on Perls V has now closed.


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## lianeisme (6 October 2009)

I was wondering if anyone had any input regarding this. I have just taken up the offer to buy the Perls V. My father said I am an idiot because they will go down as the other Perls have done. My understanding is that the pervious Perls were purchased when interest rates were high, during their time the interest rates dropped quite considerably thus making them an unattractive investment. As there seems to be no indication that interest rates will drop only go up would these Perls V be considered a better investment than the previous ones. It’s really too late for me as I have them now, however any good constructive advice would be greatly appreciated.


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## YELNATS (6 October 2009)

lianeisme said:


> I was wondering if anyone had any input regarding this. I have just taken up the offer to buy the Perls V. My father said I am an idiot because they will go down as the other Perls have done. My understanding is that the pervious Perls were purchased when interest rates were high, during their time the interest rates dropped quite considerably thus making them an unattractive investment. As there seems to be no indication that interest rates will drop only go up would these Perls V be considered a better investment than the previous ones. It’s really too late for me as I have them now, however any good constructive advice would be greatly appreciated.




Liane, please read the other comments on this thread as there is some info relevant to your questions.

I think you are right and your dad is wrong about PERLS V, at least I hope so as I have also taken up an entitlement, though I'm still waiting to see if there will be any scale-back of my application.

Basically, the advantage of PERLS V over previous PERLS is the much higher margin rate of 3.4%. This compares with only 1.05% for IV and III and only 0.95% for II. That accounts for why these are valued by the market at less than par at the moment.


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## boofhead (6 October 2009)

You also need to look at how long you plan on holding them. If you're not looking at trading them then the face value is not of as much interest. The official rate has just increased. The expectation is the BBSW will increase over time. In the short term the 3 month rate has been a little down including a low last month which appears to be the lowest for some time.

You need to figure out what you want from the investment and for how long. What are your acceptable ranges?


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## lianeisme (7 October 2009)

Thank you guys for your impute I will go through this thread and read everything. Heres hoping I made the right decision. Its just that sometimes the jargon becomes a little to complicated for me. So I will plough though.


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## YELNATS (14 October 2009)

Started trading under the ticker CBAPA today at 11 am. Currently selling at just over $205 rewarding investors with a 2.5% stag profit.: Looks like this one will have a successful launch.


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## SoBadAtTrading (14 October 2009)

I see its trading under "deferred settlement". Wonder if it's ok to sell now without receiving the despatch allocation notice?


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## nomore4s (14 October 2009)

SoBadAtTrading said:


> I see its trading under "deferred settlement". Wonder if it's ok to sell now without receiving the despatch allocation notice?




Yes you can but it is your responsibility to make sure you only sell what you own.

Although I don't know why you would want to sell them as 2.5% is not much of a return.


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## SoBadAtTrading (14 October 2009)

Thanks. Comparing it to it's nearest equivalent WBCPB, i think the current price can go up another percent or two so yeah i guess it would probably be better to wait.


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## nomore4s (14 October 2009)

On this, has anyone got confirmation on how many they have received?


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## awg (14 October 2009)

nomore4s said:


> On this, has anyone got confirmation on how many they have received?




I got 200 via a Comsec broker, as I wanted to be sure I got what I wanted.

They have been showing on my account as CBAZZ for a few days, no price.

does that count as notification?

He told me he had to cut back people wanting more than that ( although I'm sure special clients could have got more)

Could have got them commission free thru my SMSF admin, or apparently via my direct CBA holdings, I dont recall recieving any corro re this (CBA holding)

decided just to pay broker commission, too lazy to fill out forms, or muck about on this occassion


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## Calliope (14 October 2009)

awg said:


> I got 200 via a Comsec broker, as I wanted to be sure I got what I wanted.
> 
> They have been showing on my account as CBAZZ for a few days, no price.
> 
> does that count as notification




The CBAZZ will change to CBAPA overnight They can then be traded on an unconditional, but deferred settlement basis until Monday. Normal trading commences on Tuesday on a T+3 basis

Monday 19 Oct is despatch date.


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## Caliente (15 October 2009)

mmmm.... I've applied and BPAY'd for 340 units, but nothing is showing in my trading account. 

Should I be worried I have missed out on allocation???

I got mine through Comsec as well.


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## nomore4s (15 October 2009)

Caliente said:


> mmmm.... I've applied and BPAY'd for 340 units, but nothing is showing in my trading account.
> 
> Should I be worried I have missed out on allocation???
> 
> I got mine through Comsec as well.




I logged onto link services and my allocation was there but I applied via my CBA holding number, but I'm pretty sure your holdings should come up.

EDIT: CBAPA is now also showing up in my Commsec position summary.


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## lianeisme (15 October 2009)

I B-payed my wooping 50 and got them they are showing on my netwealth trading account as of yesterday as CBAPA. I did this on the comsec site also.
what does anyone think they will go to.


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## nomore4s (15 October 2009)

Announcement out this morning with the first distribution rate for payment on 1st of Feb 2010. Expected to be fully franked.



> First distribution
> The first distribution will be $3.0657 per PERLS V security on 1st February 2010. The distribution rate of 5.0862% was calculated as follows:
> Market Rate1: 3.8660 % p.a.
> Plus Margin:    3.40 % p.a.
> ...


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## Caliente (15 October 2009)

i am extremely worried now as there is no indication whatsover in my portfolio that I have any registered units.

I called the bank and they tell me they'll follow it up and call me.

I have to say I'm extremely disappointed - I've paid $68000 up front through BPAY, via the comsec offer site using a "valued customer code" to apply and I have not been allocated a SINGLE unit.


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## nomore4s (15 October 2009)

Caliente said:


> i am extremely worried now as there is no indication whatsover in my portfolio that I have any registered units.
> 
> I called the bank and they tell me they'll follow it up and call me.
> 
> I have to say I'm extremely disappointed - I've paid $68000 up front through BPAY, via the comsec offer site using a "valued customer code" to apply and I have not been allocated a SINGLE unit.




Have you checked the link site? Also I think there is 1800 number to call for PERLS customer relations


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## SoBadAtTrading (15 October 2009)

Give the PERLS V hotline a call. It will confirm whether you received any allocations.


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## Caliente (16 October 2009)

i will, did you have the number by any chance. I'm reaching them at the moment through the very slow 13 15 19 Commsec number.


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## Caliente (16 October 2009)

well good news I think. i've called Link Market Services on 1800 022 440 and they confirm I've been allotted my 340 units. But as I applied online I dont have this reference number starting with an I/X/C whatever so I cant confirm that they're in my account.

But all looking up from here


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## alphaman (16 October 2009)

Caliente said:


> well good news I think. i've called Link Market Services on 1800 022 440 and they confirm I've been allotted my 340 units.



So how come they are not showing up in your broker account? Someone stuffed up?


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## Bill M (20 October 2009)

*Re: CBA PERL V - what is it?*



Bill M said:


> Yes you can but that probably won't happen. If anything the capital value ($200) will probably rise due to the fact of the healthy 3.4% interest rate spread on the product. All the other PERLS offers were much lower.




And rise it did, last traded at $206.40, well done to all PERLS V investors. Now just sit back and collect the divi's.

Got all the paperwork in the mail today too.


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## Caliente (22 October 2009)

yes there was a stuffup. 

LinkMarket Services has made my allotment issuer sponsored rather than broker sponsored. Because of this my shares are not showing up in my Comsec account, but I recieved a letter today confirming my shares.

Now to go through the annoying process of converting my issuer sponsored holdings to CHESS through Comsec.

Either way I'm very pleased I've got my PERLS.

How often are they paying dividends again? I'm hoping its quarterly


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## Bill M (22 October 2009)

Caliente said:


> Either way I'm very pleased I've got my PERLS.
> 
> How often are they paying dividends again? I'm hoping its quarterly




Yes it is, I believe the payments will come through Feb, May, Aug and Nov, cheers.


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## awg (22 October 2009)

anyone know what process they use to fix the date to determine the relevant BBSW rate, with respect to each div?


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## boofhead (22 October 2009)

Section 1.4.5 of the prospectus says 







> The Distribution Rate is a floating rate and will be set on the first
> Business Day of each Distribution Period by adding the Margin of
> 3.4000% to the Market Rate (which is the Bank Bill Swap Rate on
> that date) and multiplying the result by (1 – Tax Rate). The Tax Rate
> is currently 30%.




From 1.4.2 







> Distributions are payable quarterly in arrears, subject to the Payment
> Tests (see Section 1.4.9 “Will Distributions always be paid?”), on the
> following dates (or the next Business Day if that date is not a
> Business Day) each year:
> ...


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## infocorp (4 November 2009)

What is the ASX ticker for PERLS V?


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## awg (4 November 2009)

infocorp said:


> What is the ASX ticker for PERLS V?




CBAPA

check previous posts on this thread for that, and other useful info.


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## lianeisme (19 November 2009)

I was wondering if anyone can tell approximately me how much per share, per quater we expect to receive in dividends. I only own 50 of them but I guess its better than nothing.


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## boofhead (19 November 2009)

At the start of each payment period CBA will put out a release explaining the coupon payment and how they come to that figure. The prospectus discloses how that figure is calculated too. On the 15th of October they said "The first distribution will be $3.0657 per PERLS V security on 1st February 2010"

Please note the first payment is for more than 90 days.


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