Australian (ASX) Stock Market Forum

ANZ Convertible Preference Shares

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Just wondering exactly what this means

You buy the for $100ea and you earn 2.5%????
 
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Not sure what the product details are but generally speaking convertible preference shares are

1 - convertible - just means they can be converted into ordinary shares at a later date. Convertible shares or notes are really just a fixed interest security that can become shares (basically you are lending money to ANZ and they are willing to pay 2.5% for your cash loan by the sounds of it)

2 - preference - this just means that the company pays this group dividends before they pay dividends on ordinary shares, and will pay out any money owed to these shareholders before ordinary shareholders (and after debentures) if the company goes under. Unlikely in the case of ANZ.

edit: $100 would convert into a number of ordinary shares, you will have to read the PDS or some other details. $100 increments/amounts just makes setting up the amount to be loaned/borrowed more sensible.
 
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Dividend rate is 90 bill rate + ANZ margin (somewhere close to 2.50%) * (1- company tax rate)..

So if the 90 bill bank bill rate is 7.25% (presently), and the margin they decide on issue is 2.5%, the annual rate (paid quarterly), is 7.25 + 2.5 * (1 - 0.3) = 6.825%.

This is floating, meaning that as the RBA adjusts interest rates, the return will change. At the moment the general consensus is that the RBA cash rate will keep dropping in the next 12 months, so you would expect less return for the near-term.

On conversion (2014) you also get $102.5 for each $100 in preferences shares for whatever the share price is at the time, or you can look at it as 2.5% more shares for the same outlay.

These sort of shares are really for those looking for a solid, regular cash return. Probably more of interest to institutionals who want to ensure a steady return on say millions, but retail (mum&dad) investors may also be interested.

The 90 day bank bill rate will generally follow the RBA cash rate target, although it has blown out a little lately due to the credit crisis, see attached.

Hope I've got this correct anyhow.
 

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If it's Income you're after Suncorp's recently released equivelant, SUNPB, might be an option. They are paying the same terms with a magrin of 3.2% above the cash rate, so a yield currently just over 11%. There conversion price though is slightly less I believe, $101.01.

DYOR
 
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Dutchie: you are correct, using the order of precedence as I have written it there..

I unfortunately left out the parentheses (which are important :banghead:) from the prospectus, which should read.

dividend rate = (bank bill rate + margin) * (1 - tax rate)

Which comes to the ~6.825% figure calculated as an example.
 
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bally... i take it that if you are in pension phase you get a 2.05% refund from the ATO if the tax rate is 30% each year as well :)?
 
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Hi,

I'm new here.
I was offered these preference shares and had to take up the offer by last Wednesday, I didn't and a few days later ANZ doubled the offereing.

I don't trust anything at present and have had my money on TD for almost 3 years.

I think I'll wait til the dust settles and buy BHP and perhaps RIO only the big stuff, any other ideas ?
 
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so is there any way that you can lose out of investing in this kind of product
If ANZ suffers from further unthinkable losses (which seem to have occured rather frequently lately), then ANZ may stop the distributions for a period or two. That's probably the most severe loss you can get.

When Westpac almost went under in the early 90s, how did their preferece shares go? Anyone knows?
 
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Good point, in fact the only thing thats holding me back now is the possibility of the financial system collapsing, it's not impossible in which case even my TD would be in trouble.
 
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ok couple of questions (i am new to these types of shares as well)
my choice would be to buy these preference shares or ordinary shares - now if the conversion rate is $102.5 for ever $100 then for a $5000 minimum investment i would be looking at a profit of $125 (in 2019??) not really worth getting overly excited about, especially if this is regardless of the ordinary share price - however with ordinary shares the usual buy them low and sell them high could make my a much healthier profit

the deciding factor could be the dividends - are they the same both ways? the advantages of the preference shares (first paid out etc) is negligable to me as i doubt ANZ will be going under any time soon.

in regards to trading can these shares me bought and sold like regular shares? if, say prior to the mandartory conversion, i want to bail or need the money, can the shares be sold?

time is running out on whether i purchase these shares or not and it seems to be difficult to justify the investment with the information available :banghead:

cheers for any further info
 

Bill M

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in regards to trading can these shares me bought and sold like regular shares? if, say prior to the mandartory conversion, i want to bail or need the money, can the shares be sold?
Short answer to this one is yes you can. Just keep in mind when things go bad they can and do drop below face value and you will get back less than you put in. I am a holder of the previous one, CPS 2. I like CPS 2 better, I don't like the trigger clause in CPS 3 and as such I won't be taking any on. The message ParleVouFrancois posted is worth reading, highlights a lot of negatives, good luck.
 
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