Hybrid Securities

[Bill M]

The prospectus on SBKHB is f'n hopeless I have decided. I know it is a 90 BBSW, 0.75% margin, pays interest so no franking credit. I can't see anything on their obligations should they ever choose to buy back - acknowledging they are perpetual?

I'm a little unsure if you could find the original prospectus or not. It was issued in the late 90's and had the ASX code SUNHB when listed. You could google that and I think you may find it. The name change happeneded recently, I can't recall anything changing from the old to new other than the name. I would say this will probably never get re purchased. Look at it this way, where else would Suncorp ever get such cheap funding now? No where, it is not in their interest to re purchase. Looking at this stock just as a buy on market and sell on market stock, the interest payment of roughly 8% at todays price looks good. I wonder why Comsec only offers 55% on the margin loan facility though? Risky? Suncorp? No quick capital gains here I think but not bad for interest maybe. The are better ones around, it's just getting a bit cheap right now, last price was $69.

 

[awg]

MXUPA looking to break out if it can close where it is now. Will be a yearly high, albeit on low volume

I accumulate on dips, now 3rd largest holding in my entire portfolio.
A bit mindful has occasional spreads and low liquidity

Hi Bill, only just found this thread. I bought some CBAPA probably around the same time as you in Feb. I am interested in your logic as to their likely price increase? Thanks.

holding CBAPA.

out of interest, I read that a slight arb can be had on the FF hybrids after ex-date, as many buyers are OS ( therefore franking credits are irrelevant, ie not available to them).

I have observed this to generally be the case, but unfortunately, a largish trade carried across a few days would probably be needed to make it worthwhile, and I dont keep that sort of free cash reserve available, also havent analysed the data methodically enough to justify, as yet.

Every bit of capital appreciation I can squeeze out is a buffer, am relatively overweight in hybrids as bank interest rates are too meagre because I was consistently getting RIPPED OFF and mucked about as an SMSF with Corporate Trustee

 

[ricee007]

Where do you get your MXUPA information on? It is hard for me to tell how risky they actually are, so I am not overweight in them... despite thinking that , at this price, it probably is a good idea.

 

[Reasons]

Where do you get your MXUPA information on? It is hard for me to tell how risky they actually are, so I am not overweight in them... despite thinking that , at this price, it probably is a good idea.

They haven't made it easy to find - the original 2004 prospectus can be found here...
http://brookfield.eprospect.com.au/pdf/pds/sites.pdf

They are highly speculative like ELDPA on the basis of poor interest cover and a perceived dodgy balance sheet.

 

[Bill M]

holding CBAPA.

out of interest, I read that a slight arb can be had on the FF hybrids after ex-date, as many buyers are OS ( therefore franking credits are irrelevant, ie not available to them).

I have observed this to generally be the case, but unfortunately, a largish trade carried across a few days would probably be needed to make it worthwhile, and I dont keep that sort of free cash reserve available, also havent analysed the data methodically enough to justify, as yet.

Are you suggesting that they tend to dump a bit harder than necessary? I am not too sure what you mean. I would sell them at the right price if the opportunity arose. Any info on this "arb" would be helpful.

By the way SVWPA is going ex dividend soon. The price has run up to a high of $95.98, I was going to sell the next day but then it went down to $95.... I have to be patient. If it doesn't get to my sell price the divi will be nice.

 

[ricee007]

They haven't made it easy to find - the original 2004 prospectus can be found here...
http://brookfield.eprospect.com.au/pdf/pds/sites.pdf

They are highly speculative like ELDPA on the basis of poor interest cover and a perceived dodgy balance sheet.

Yea, but, I mean, where do you find up-to-date information? -> in the last 7 years, their balance sheet has greatly changed. I could tell you what the trust has for assets.... but I don't know how secure the distributions are into the future / when conversion is likely / etc.

 

[Reasons]

Yea, but, I mean, where do you find up-to-date information? -> in the last 7 years, their balance sheet has greatly changed. I could tell you what the trust has for assets.... but I don't know how secure the distributions are into the future / when conversion is likely / etc.

This has all the up-to-date info under 'Related Links' on the right hand side...
http://www.au.brookfield.com/investment-platform/sites/2011-key-dates

It is perpetual, they stepped up on 22/2/2010 and applied a 2% step-up margin from 1/4/2010 to the 90BBSW so depending who you read, redemption seems unlikely as even at ~10.5% return general group-think has it they will consider it cheap money and are unlikely to seek redemption.

The $450m raised through MXUPA was loaned to Brookfield Australia Property Trust, so the performance of BAPT is what you have to pay attention to.

 

[ricee007]

This has all the up-to-date info under 'Related Links' on the right hand side...
http://www.au.brookfield.com/investment-platform/sites/2011-key-dates

Ty

It is perpetual, they stepped up on 22/2/2010 and applied a 2% step-up margin from 1/4/2010 to the 90BBSW

Yep.

so depending who you read, redemption seems unlikely as even at ~10.5% return general group-think has it they will consider it cheap money and are unlikely to seek redemption.

The $450m raised through MXUPA was loaned to Brookfield Australia Property Trust, so the performance of BAPT is what you have to pay attention to.

Cheers.

Hmm, I was of the opinion that the financial position of BAM was also important, and that BAM is quite well capitalised, and not *particularly* risky. Thus, they could get cheaper funding than 3.9% above BBSW.

However, I'm not entirely sure how grounded in reason my thoughts are.

Furthermore, continuing with the immediately preceding sentence, I figure if BBSW rises much higher (has dropped recently, I know), then they can get cheaper funding - that is “cheaper enough” to make it worth the while to go about the redemption process, and utilise that cheaper funding.

Now, interest rates are going up, short-medium term, so BBSW will go up short-medium term, so 3.9% above BBSW becomes more expensive, and redemption becomes more likely.

Also, if Brookfield Office Properties lists on the ASX http://www.businessspectator.com.au...listing-pd20110214-E2UFJ?opendocument&src=rss , sure it *DOES* show an intention to expand (less likely to want to pay back $450m of debt)… but also it gives them access to a significant amount of money (billions?) (more likely to pay back $450m). Having said that, theoretically, hybrids are cheaper than equity… so might as well raise less equity and keep hybrids out, potentially?

Also, I’m not quite sure how inter-related BOP is with MXUPA. It is a very complex organizational structure of related entities and associates.

Another consideration is, at $80, I would have thought this would be right up the ally of someone like Brookfield Asset Management (the BAM that I mentioned earlier), either by itself, or through a related entity. I mean, at $80, from the (albeit limited) information that I have, it seems quite decent? – whether that be through an on, or off market buy back or just BAM buying on-market for itself.

http://investing.businessweek.com/b...tocks/private/snapshot.asp?privcapId=53340342 is all 12 months old, but all seems rosy…. And property values have only increased in the last 12 months? Financial results for FY 2011 will be, obviously, as always, crucial… but even merely matching last year should be considered good news?

Management seems smart enough?

At the end of the day, 4.9+3.9 = $8.8.
@ $80, 100/80 = 1.25.
1.25*8.8 = 11%.

I purchased my current lot at under $80. I’m laughing all the way to the bank at the moment, and not too upset whether or not these are redeemed short-medium term or not. My holdings aren’t vast… but I do enjoy seeing the dividends trickle into my account, next to my GNSPA, quarterly. I do regret selling FXJPB @ $90 though.

And, in conclusion, I still can’t form a confident opinion on the likelihood of redemption of these (but don’t reallllly care, as nothing indicates to me that the trust will be unable to pay a dividend). It would appear to me to be a good buy @ $80+, but, I don’t quite back my judgment enough to double my holdings.

Looking at WOWHB, $99.9, 1.1%.... surely will stepup to 3.1% September 2011. Thus, it would seem that WOWHB would need to pay around 3.1% above BBSW to get funding.

BAPT is obviously more risky. However, hybrids are more expensive than debt. It would really depend on a number of factors, which I can’t take into account accurately… but ALE Notes 2 fairly recently listed at a 4% above, so if WOWHB is around 3.1%, and ALE Notes 2 are around 4%....It seems weird to me that BAPT is seen as THAT much riskier that it is, effectively, at 11-4.9 = 6.1% above BBSW.

ALE at less than 4% above (trading at $102), WOWHB effectively at circa 3.1% above, AAZPB at, effectively, 5.2% above…. Etc…. and MXUPA (BAPT) at effectively 6.1% above…..

Okay, so MXUPA is closer to $82 than $80, and BBSW isn’t exactly 4.9%, and the different time-line of when things mature will be important, and the ‘risk’ that Woolworths will redeem wowhb, etc…. but, you get the point. MXUPA at $80 and 3.9% above seems expensive to me.


However, take all of the amateur talk above with a large pinch of salt, because, as I've aptly proven, I have no clue.

 

[ricee007]

There you go, MXUPA up $5 in the last 2 days.

Even if it makes it to $90.90, that is still:
4.9+3.9 = 8.8 *1.1 = 9.7%...*AND* with the 10% potential upside when it gets redeemed....

So, I won't be selling into this strength... I wonder what casued this strength tho?

Still has: 29 buyers for 8,240 units
10 sellers for 4,816 units

$162,000 traded today

Up 3.6% (to $86.43) today, but was up to $87.96 earlier today....

 

[prawn_86]

Yeh im up about 12% on unrealised capital gains and also get about 11.5% pa in divvies. More than happy holding with that yeild

 

[Reasons]

There you go, MXUPA up $5 in the last 2 days.

Even if it makes it to $90.90, that is still:
4.9+3.9 = 8.8 *1.1 = 9.7%...*AND* with the 10% potential upside when it gets redeemed....

So, I won't be selling into this strength... I wonder what casued this strength tho?

....

A few seemed to get more active on the higher than expected CPI figures and the associated chance of the BBSW being increased; and just as likely someone has put a buy on them accordingly.

 

[Bill M]

SVWPA creeping up as I thought they would. When they converted people were selling at $85, gee I love doom and gloom. Today finished up at $93.40.

This ones in the bag, sold today at $96.09. It goes ex dividend tomorrow I think.

Bought at average price of $88.58. Capital gains of 8.3% plus about 8% dividend yield all the way through. Time held, about 2 years.

Reasons for selling:
1. Good capital gains for which I will pay no tax as I have losses to offset it with.
2. At ex dividend the price will drop about $4.
3. They are still perpetual and may not convert, better take the money and run.

All in all I was happy with this one. Now if the price falls more than $4 when it goes ex dividend I might buy them back, what's next?

 

[YELNATS]

This ones in the bag, sold today at $96.09. It goes ex dividend tomorrow I think.

All in all I was happy with this one. Now if the price falls more than $4 when it goes ex dividend I might buy them back, what's next?

Bought in at $85.803 average. Happy to continue to hold SVWPA and get the $2.4154 dividend on May 31. If it drops $4 will probably top up, as seems a good long term hold.

 

[Bill M]

Bought in at $85.803 average. Happy to continue to hold SVWPA and get the $2.4154 dividend on May 31. If it drops $4 will probably top up, as seems a good long term hold.

That divi is actually $3.49 according to the 5th May announcement, definitely very good.

 

[YELNATS]

That divi is actually $3.49 according to the 5th May announcement, definitely very good.

Sorry, you're right, I was mistakenly looking at the May 2010 dividend. After 100% franking credit for a SMSF in pension phase, this equates to nearly $5. Not too bad at all.

 

[skc]

Looked at these some time ago but didn't pull the trigger...

According to Iress the last 2 dividends were paid out
$3.7128 on 20 Dec (ex)
$3.2655 on 17 Jun (ex)

If you bought say start of year at ~$55 you've got 12.5% yield (and 25% capital gain).

Meanwhile the share price of PPX is still languishing at 90% below their 2007 peak.

It may be possible to play this arbitrage - buy PXUPA and short PPX. But not sure you can easily short PPX and you are toasted if they get a takeover or something like that.

Big plunge today on PPX and PXUPA. You can now buy PXUPA for ~$43 or yeild is (in theory) 15%...

How did my theoretical arbitrage go in 6 months?

PPX Short Entry = 42c Exit = 20.5c Change = +51%
PXUPA Long Entry = $63.50 Exit = $43 today + $3.71 dividend Change = -26.4%

Net change 25%. Would have been an awesome trade...

Or if one was to take profit on the openning price, that's even better at 42%.

Too bad it was just on paper (punt intended).

 

[ricee007]

I would have thought the sigh of relief that GNSPA holders heaved when GNS affirmed that it was paying a dividend would have pushed GNSPA back up to $75.

I just think at $67 that it is ridiculously cheap.

On another note,

I keep checking out the price of non-Big 4 financial institution hybrids... but even with the recent ASX falls, no true bargains have popped out at me... some 'good value', but nothing that screams 'sell your first born and buy now'. Anyone feel the same way?

BENHB paying $1.44, but dropping $4... whilst BEN raised was very interesting.

BUT, at $75 (last 75.5, bid 75, offer 76)........ it is paying 6% on $100... 6*1.3333333 = 8%. So, only about 8%.

At 1% margin, Bendigo has no reason to 'ever' redeem these... but, to make it worth while, I'd probably want more like 10% = BENHB @ $60.

Again, this means that BENHB = 'value' ( @ 8%)... but not 'oh I need to buy now (10%)...

Same analysis on MBLHB, but paying slightly higher.

 

[Huskar]

I would have thought the sigh of relief that GNSPA holders heaved when GNS affirmed that it was paying a dividend would have pushed GNSPA back up to $75.

Just to confirm, if GNS (or for that matter PPX) said it would not pay the dividend on its common stock, does this also mean it would suspend payments on its hybrids?

Apologies - a bit new to hybrids but fascinated.

 

[ricee007]

Just to confirm, if GNS (or for that matter PPX) said it would not pay the dividend on its common stock, does this also mean it would suspend payments on its hybrids?

Apologies - a bit new to hybrids but fascinated.

No, no it does not mean that.

Generally (I haven't checked PUXPA's, and I can't guarantee what GNSPA says, but, generally), if you DON'T pay interest on the hybrids, you CAN'T pay dividends to ordinary shareholders. However, it doesn't work in reverse.

Case in point: GNS last paid a dividend 2009... yet have not missed a GNSPA payment.

In other news, GNS up 27%, GNSPA barely up.

If GNS sells a couple of hundred million in assets, *and* the market doesn't disapprove of the price, and I have sufficient cash flow, I'll prob buy more GNSPA

 

[Bill M]

This ones in the bag, sold today at $96.09. It goes ex dividend tomorrow I think.

Repurchased SVWPA today at $86.30, gee I love doom and gloom. At this price it's a 12% gross yield.