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Hybrid Securities

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ELDPA continued to surge yesterday, I find $59 a bit surprising. Maybe I need to take some responsibility I sold half of mine at $55 :banghead:.

Given the risk compared to others and still 2 years to step up. It is now trading above MXUPA and not that far below rated Hybrids.
 
On the other I bought GMPPA yesterday morning only to see it drop $6. They (and GMG) are in a trading halt today. I think good news may come out of it.
 
jbl1971 said:
SEVPC - have started to lower my exposure just in case Stokes makes a bid for CMJ which may mean no redemption.
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I own some of these. My thoughts are that redemption is the best outcome and still a strong possibility. However if that does not happen then the interest rate steps up to *about* 4.5% above the 6 Month bank bill rate. That would give me about a 7.7% gross coupon rate. I paid around $90 a share for these so in fact my return will be higher. So in either case I am very happy to hold these, cheers.
 
Calliope said:
On the other I bought GMPPA yesterday morning only to see it drop $6. They (and GMG) are in a trading halt today. I think good news may come out of it.
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Goodman Group requested a trading halt this morning before revealing details of its planed $1.7 billion capital raising.

It is understood the well-anticipated deal will comprise a $1.2 billion equity raising through Macquarie Capital, and a $500 million preference share issue to the Chinese Investment Corporation through Morgan Stanley.

Full Story Here
 
Calliope said:
On the other I bought GMPPA yesterday morning only to see it drop $6. They (and GMG) are in a trading halt today. I think good news may come out of it.
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Calliope said:
GMPPA certainly rebounded this morning.
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Calliope, good call mate, well done! I am a holder of these but I bought for much higher prices and before the market crash.

This debt restructuring that they are going to do is going to save the company I reckon. I read somewhere that when it's all finalised GMG will be at gearing level of only 27%. I also read that no further refinancing is due for GMG until 2012. I can't provide a link as evidence but from memory that is what I read somewhere. (Please check that before taking it as 100% correct). At the end of the day you bought GMPPA at a 45% discount which will give you a running yield of about 9% with a possible 45% capital gain to come. For me I am very happy that now our interest payments *look* safe and the company should survive. Lets not forget how GMPPA collapsed to $11 when things were not looking so rosy.

Anyhow good luck with them and well done.
 
Elders - ELDPA

From FIIG Securities research;

Elders is one corporate issuer that is yet to file its accounts for 2009. Nonetheless what information it has delivered can only be described as a major positive for the company’s hybrid investors.

As mentioned above, the company announced yesterday that it had sold its ITC Timber operations to Gunns for $100m further reducing its debt burden. The company was also placed in a trading halt on the news that it was conducting a capital raising for as much as $500m.

There is also speculation that Elders is looking at selling its fertilizer division for $100m. The company had previously announced a raft of asset sales including stakes in AAco and Elders Rural Bank. Combined these moves will likely see net debt reduced to approximately $200m from $959m at 31 December 2009 with the company still retaining its premier business – Elders Rural Services.

This places the company in a strong financial position and virtually eliminates any credit risk associated with the hybrid. When this security recommences trading shortly we would expect it will be at least $70 – which still represents reasonable value.
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(my emphasis) It is presently trading around $57.
 
Well they got that wrong. I think the 20% drop in ELDPA this morning mainly resulted from the news that there is a two year suspension of dividends.

I think the sell off is a bit overdone, when you consider that that the loss in selling far exceeds two years of dividends, and Elders future seems much brighter than it was a week ago
 
ELDPA comes onto the radar for me now as there isn't the degree of risk of capital loss. The freeze on hybrid distributions was not anticipated by FIIG or the market generally. There is no doubt Elders came very close to falling over but Jackman has pulled off the great escape. ELDPA is an attractive way to play the recovery now.

Seems to be a retracement in a few hybrids. MXUPA is retracing to a buy range (up to $55.00).
 
From FIIG Securities Research;

Hybrid Update - PERLS 3 not 5 the Top CBA Hybrid

A lot can happen during a week in financial markets. In last week’s edition of ‘The Wire’ we highlighted how the new Commonwealth Bank hybrid, PERLS 5, was good relative value compared with other bank converting preference shares but actually offered a lower spread than another of the bank’s hybrids – the PERLS 3.

Since then, that differential in spread has widened even further due to a sell-off in PERLS 3. We suspect the main reason this security has been sold down is so investors can find the cash to purchase PERLS 5. This has resulted in the spread on the PERLS 3 increasing to 5.47% – or 2.07% more than the PERLS 5 offer.

The following chart illustrates the price performance of the PERLS 3. There has been some volatility in the price recently but the vast majority of the sell-off occurred after the PERLS 5 was launched.

As mentioned in our past review the structure of the two securities isn’t the same. The PERLS 5 has more favourable terms for investors due to its shorter term, higher cash coupon and greater certainty in its conversion clauses. When the difference in spreads was around 1.00% it was a line ball call as to which security was preferred, however, now that the spread has more than doubled, the PERLS 3 are clearly the most attractive Commonwealth Bank hybrid on the market.
 

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This interest rate rise today is the first of what may be a few to come. This is what I have been predicting will happen. As the bank bill rates rise so too will most hybrid securities incomes. In the case of PERLS V the yield should be grossing 7% on the coupon now. More will follow and this in turn should bring up the prices of all good quality hybrids.:D
 
Warren Greenspan said:
Howdy all
I've become interested in interest rate securities esp some of the hybrids.
I've been accumulating BEPPA (plenty of helpful info here on ASF, thanks BB) and am interested in GNSPA.
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I hope you have done well on the recent surge of beppa. you should have booked a tidy profit.

I sold have sold out of beppa completely now at a tad over 37cents After buying in at 8.9c.
 
IANG is up for vote in December. IAG want to adjust a number of conditions including reset date and margin. Much more details in the ASX annoucement.
 
market liked it more than i would have expected, up 7%, on relatively large volume.

I thought the consensus likely outcome was they would covert.

Seems like 4% over BBSW is deemed safe enough.

At price now around $98, i wont be buying anymore, but will hang on to what i have for my defensive segment, bought at $75
 
The IANG terms offered are a good result and clearly the change will be approved. I believe that they will trade above face value in the not too distant future which would be comparable with the lower rated TAHHA (4.25% margin and trades at 7% premium to face value) and CBAPA (3.4% margin and trades at 2.7% premium to face value).

The existing IAG preference share IAGPA is a fixed rate security and trades at (or a fraction above) face value and has a fixed fully franked dividend rate of 5.63%. In the current interest rate environment I expect IANG to yield in excess of this so this further justifies a premium.

I wish I had hung onto mine instead of taking profits!
 
ANZ is launching a Convertable Preference Share Offer, "CPS2"

Margin expected to be in the range of 3.10%-3.30% per annum

Mandatory Conversion Date
(subject to mandatory conversion conditions)
15 December 2016

All the announcements can found at asx.com.au website.

I think this might pan out the same way as PERLS V (the conditions and rates are similar). Anyone have an opinion?
 
With a yield close to 7% the ANZ new issue hybrid will be heavily supported. Given the recent CBA Hybrid listed at $206 (face vale $200) I would expect a list price of $102-$103.
With the expectation of higher interest rates the floating rate Hybrids are a good alternative to fixed interest options and anyone seeking a regular income stream. Before the GFC the acceptable margins on these securities was in the range of .5 - 1.0% above the 90 day BBR. The markets perception of credit risk has forced companies and banks to offer a higher margin. With margins over 3%, hybrids offered by the major banks provide a relative low risk/good return option.
It will be interesting to see what the ANZ will do with the $750m raised. Probably looking at another purchase or takeover?
 
rbourne1 said:
With a yield close to 7% the ANZ new issue hybrid will be heavily supported. Given the recent CBA Hybrid listed at $206 (face vale $200) I would expect a list price of $102-$103.
With the expectation of higher interest rates the floating rate Hybrids are a good altersnative to fixed interest options and anyone seeking a regular income stream. Before the GFC the acceptable margins on these securities was in the range of .5 - 1.0% above the 90 day BBR. The markets perception of credit risk has forced companies and banks to offer a higher margin. With margins over 3%, hybrids offered by the major banks provide a relative low risk/good return option.
It will be interesting to see what the ANZ will do with the $750m raised. Probably looking at another purchase or takeover?
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Hm, probably keep it with their already too large surplus cash pile *rolls eyes*. Sigh at ANZ.

Then, perhaps, eventually, spend it on Asian assets. But, there stock pile is already well big enough, and their T1 ratio is more than all of the banks... BEFORE issuing these $750m. I just can't see why they raised this capital. It's annoying.

IANG is tempting... 4% above BBSW for 10 years is tempting, I will admit. Just not quite sure how screwed around with conversion, etc I'll be. I'll look into it (specifically, the terms of the preference shares!

My MXUPA and GNSPA are doing well, and my FXJPB are holding steady
 
Yes, I think the major bank hybrids can be used as the benchmark. Any margin achieved above the major banks carries extra risk. As an alternative to fixed interest I like to stick with A plus credit ratings. Australia is lucky to have all 4 major banks out of 9 in the world to have a AA rating or higher.
Lonsec provide a good summary of listed income securities here
 
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