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Westpac SPS ll New Offer - Nice Interest Rates

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Bill M

Bill M

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This might be good for those seeking nice quarterly interest income. The spread is going to be around the 4% above the 90 day bank bill. At current rates that is 7% grossed up. I am an investor of these kinds of products and find it a nice way to achieve a passive income. 3 years ago you would have been lucky to get 1% over the 90 bill rate, this one is certainly interesting. For more info click on the following link http://www.westpac.com.au/internet/publish.nsf/Content/WIICSS+Westpac+SPS+II+Disclaimer
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The Offer is for Westpac SPS II at an Issue Price of $100 each to raise
approximately $500 million with the ability to raise more or less.
Westpac SPS II are subordinated, unguaranteed securities which are expected to pay fully franked, non-cumulative, floating rate, quarterly Distributions.
 

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Bill,

The dividend yield on ordinary shares is 12% at current share price and I think a good chance of this being maintained.

Given upside on share price, I much prefer the shares. If the sky falls in on the banks :eek:, the equity will be worthless but so will the hybrids.

I hold westpac shares.
 
Very good points gooner however the preference shares eventually have to be cashed in at face value or converted to ordinary shares at the face value price ($100). In that case, at maturity you will get your money back unlike ordinary shares which can go anywhere. It seems a relatively safe and conservative investment. All hybrids are only as good as the parent company and I don't think Westpac is going to go under, cheers.
 
Hello alphaman, after reading what you just stated I checked my fixed interest watch list and you are right. Out of 20 different offerings all are below their face value, even the recent issues. I agree I think I will give this one as miss as there are far too many better opportunities around out there already. Today first class issues like Perls IV got hammered, margin calls maybe, I don't know. So many bargains right now, so little money left, cheers.
 
Just as an example of why this issue may not be as good as it may appear. Right now convertible notes, hybrids and floating rate notes are well down from their face value of $100.

The Westpac offer at todays rates is about 3% + 3.8% spread, total 6.8%.

However look at the floating rate note SUNHB. It offers .75% above todays interest rates, so the total there is 3% + .75% = 3.75%. You might look at that and think it is lousy but wait it is under $40 to buy right now.

Lets use 10K as your investment amount. The WBC offer will pay you 6.8% for 12 Months if interest rates stay the same. If you buy SUNHB you will get 250 notes as it works out 10K divided buy $40 = 250

The next distribution rate for SUNHB is going to be .93c a share. So 250 x .93 x 4 = $930 for a full year. That means SUNHB will return 9.3% for the year and WBC's issue will return 6.8%.

Clearly SUNHB is the better note. The SUNHB note pays cumulative dividends which means if the company doesn't pay dividends at any one time they can only do it for so long and eventually they must pay them (without interest). The WBC offer is not cumulative.The only problem with SUNHB is that they are perpetual and in theory might never be exchanged by the parent company.

If you are interested in these types of investments some are really cheap right now, well off their issue price of $100 per note. Each and everyone of these issues are different so you should read the relevant PDS, good luck.
 
freddy2 said:
Is there a place where you can find the relevant PDS and other information about these issues?
Click to expand...

What I normally do is look at the stock I am interested in then do a search on google or the companies website. Somewhere there is usually a PDS tucked away. Occasionally it is hard to find and it may take a while as some are 10 years old, but they are out there. Sometimes use the word "Prospectus" in your search as they can also be called that.
 
For comparison NAB income securities pay 1.25% over the 90 day bank bill rate on their $100 face value. The current interest rate according to the ASX link above is 4.333% so this implies a 90 day bank bill rate of 3.083% when last set.

These are currently trading at around $60. At that price the annual yield is 7.222% which is 4.139% higher than the above 90 day bank bill rate.
 
That's another perfect example drsmith. I believe the NAB one is perpetual also and may not be converted anytime soon. There are others out there like SEVPC and STOPB that have a set conversion/step up or repayment date. Those ones must do something, if they do nothing they have what they call a step up in interest rates. I think SEVPC from memory goes from a 2.5% margin to a 4.5% margin. At those rates they are more likely to convert to shares or pay back the face value, in which case if you buy them today for $79 you will make a capital profit of $21 per share as well.;)
 
Is someone able to point me into some information about what these are?

Someone said before that one is $79, but will be bought back at $100 (a $21 profit), plus its earning a certain amount of interest (on the $79 or $100?).
 
ojm, with a bit of searching I have found some information on SEVPC which is the stock in question. It is NOT the full PDS so I would suggest you read that in full before acting.

Anyhow here is the link, go there and click on the 6-04-2005 announcement.

http://www.sevencorporate.com.au/default.aspx?page=mediareleases&year=2005&month=4

From the announcement:
"a step-up date of 31 May 2010. The margin will be increased by a onetime
step-up of 2.25% per annum (inclusive of the value of franking) for all
TELYS3 on issue unless Seven Network exercises its right to convert
and/or exchange the TELYS3 on that date."
 
This offer was over subscribed, who said there's no money around? Aussies love them banks.

From todays announcement:

Westpac SPS II – offer successfully closed

Westpac Banking Corporation announced today that the Offer of Westpac Stapled Preferred Securities II (Westpac SPS II) has successfully closed. As a result of strong demand from St.George Hybrid Holders under the Reinvestment Offer, Westpac has increased the Offer from approximately $700 million and will now raise approximately $908 million from the issue of 9,083,278 Westpac SPS II at $100 each on 31 March 2009.
 
Bill M said:
This offer was over subscribed, who said there's no money around? Aussies love them banks.

From todays announcement:

Westpac SPS II – offer successfully closed

Westpac Banking Corporation announced today that the Offer of Westpac Stapled Preferred Securities II (Westpac SPS II) has successfully closed. As a result of strong demand from St.George Hybrid Holders under the Reinvestment Offer, Westpac has increased the Offer from approximately $700 million and will now raise approximately $908 million from the issue of 9,083,278 Westpac SPS II at $100 each on 31 March 2009.
Click to expand...

Yes, I was a holder of SGBPE St George's CPS II hybrids until they ceased trading recently. However, I decided not to go ahead with the conversion to Westpac's SPS II offer mostly for the same reasons as listed above, ie. that most hybrids were recently trading below their face value.

If the SPS II go much below $100 I may take a stake in them, but based on the strong investor take-up as above, and on the performance of SGBPE which finished trading at $99.851 (their face value was also $100), this new issue may trade quite stongly, I suspect.
 
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