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ASX listed interest rate securities
nipper
post Posted: Jul 19 2019, 08:41 AM
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QUOTE
If you want to know what financial markets absurdity looks like, here is a screenshot from a Bloomberg terminal for a bond priced last week. It shows:
Issuer: Bundesrepublik Deutschland (Federal Republic of Germany)
Maturity: 15 August 2029 (10 years)
Coupon: 0.000000% fixed (zero, zip, zilch, nada ... any way you cut it)
Issue Price: 102.64 (yes, pay 102.64 now and receive 100 in 10 years)

Don't bother checking your bank account on each interest date.
The yield-to-maturity on this bond is minus 0.26% for 10 years, and you're worried about term deposit rates of 2%!


It brings back memories of when I did the first-ever zero coupon Australian dollar Eurobond issue for the Commonwealth Bank back in December 1989 (the three Number 1 hits of that month were by Phil Collins, Billy Joel and the infamous Milli Vanilli). However, there is one massive difference over 30 years. The issue price of our bond was $55, with $100 repaid in five years. No wonder it quickly sold out to tax-avoiding 'Belgian dentists'. Yield-to-maturity, 12.7% pa. Those were fun days, traveling the world with a AAA borrower in my pocket.

Many investors think of the listed market to buy company shares, but in recent years, the ASX has introduced a wide range of ETFs, LICs, LITs, notes and hybrids to meet fixed interest demand. While these do not have the security of a government-guaranteed term deposit, we review some listed investments that can meet income needs without equity risk

https://cuffelinks.com.au/generate-income-w...ut-equity-risk/



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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

"If I had even the slightest grasp upon my own faculties, I would not make essays, I would make decisions." ― Michel de Montaigne

Said 'Thanks' for this post: early birds  mullokintyre  
 
nipper
post Posted: Mar 17 2010, 07:09 PM
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In Reply To: wren's post @ Mar 14 2010, 09:44 AM

Hybrids v Equities - Dispelling the Myths - FIIG Securites Limited


Are hybrids as risky as equities? That is a view that seems to be gaining traction in certain financial circles these days. Some financial commentators are suggesting that hybrids offer the worst of both worlds – the limited upside of fixed income and all the risk of equities.

Despite this bout of misinformation being proliferated throughout the financial media, hybrids are exactly what the name implies – a security with a mix of debt and equity features, with a corresponding level of risk. In dispelling the myths about hybrids, we’ll outline four characteristics of why they are lower risk investments than equities and provide some examples of how this applies.


Higher Ranking in Capital Structure
In almost all instances, hybrids sit higher up the capital structure than equities. This means that in the event of insolvency, hybrid investors will be paid out in priority to shareholders. Practically, in most insolvencies, both the hybrid and equity investors will be wiped out. However, the higher ranking in the capital structure still has its benefits – notably in the case of corporate re-structuring.

A classic example of this occurred in Babcock & Brown Infrastructure (BBI), now called Prime Infrastructure Group. As part of the recapitalisation of this company, BBI equity investors were almost totally wiped out – they received a four cent per security final distribution and then one share in the new entity for every 15,000 securities owned.

Meanwhile BBI hybrid investors (security code BEPPA at the time) benefitted from being placed higher up the capital structure. They received shares in the new entity which translated to a return of approximately 40 cents in the dollar. By being placed higher up the capital structure, hybrid investors had an enhanced bargaining position in the restructuring negotiations.


Lower Price Volatility
A second benefit of investing in hybrids is that they normally show lower price volatility than the underlying shares. A good example to use is the Goodman Group – the company we will use to demonstrate the remaining differences between hybrids and equities.

During 2009, Goodman’s hybrid security, the GMPPA reached a low of $12 – a fall of 87% from $99 during the year. That’s obviously not a good result, but it is still a better performance that the underlying Goodman shares.

They declined by 97% from top to bottom in a twelve month span meaning all but 3% of a shareholder’s investment was wiped out. This is a common theme with hybrids. While they can be volatile investments, in almost all instances the price swings of these securities are less than those of the underlying shares.

The first couple of characteristics are important but it is the next two that really display the advantages of hybrids over equities.


Distribution/Dividend Certainty
One of the major benefits of hybrids over equities is the certainty of their distributions. The recent financial crisis has proven that equity dividends don’t always increase. Even the supposed rock solid banks were forced to cut their dividends by around 25% and many companies ceased dividends entirely.

Hybrid distributions on the other hand pay a defined coupon, just like debt. While hybrids typically allow the issuer to suspend distributions entirely – and this measure was required for companies such as PaperlinX and Elders – most continued to pay as normal.

The table below illustrates the distributions on both the ordinary shares and hybrids of Goodmans. During 2008, the ordinary shares paid some juicy dividends – however that was cut entirely in June 2009. The company re-commenced dividends in December 2009 but at a savagely discounted amount, largely due to the increased number of shares on issue after a substantial capital raising. Meanwhile despite the pain being experienced on the dividend front by the shareholders, investors in the hybrid continued to receive their set return – the 90 day bank bill swap rate (BBSW) +1.90% on a quarterly basis.



Source: FIIG Securities

The other important point in relation to distribution on hybrids is that they must be paid for ordinary shareholders to get their dividends. If for any reason distributions on a hybrid are suspended, typically payments on these securities must be re-instated for a year, or alternatively, a year’s worth of missed distributions must be made up before ordinary shareholders can again receive dividends. This is a very important protection mechanism for hybrid investors, especially for those issuers who have an implicit agreement with their shareholders that they will maintain a steady stream of dividends such as banks and property trusts.


Beneficiaries of Capital Raisings
The final and potentially most important benefit is the impact of capital raisings. While ordinary shareholders bear the brunt of a capital raising via the dilutionary impact of the increased number of shares on issue (and potentially coughing up the new cash as well if it’s a rights issue) hybrid owners, like any debt investors, benefit from the additional equity.

Once again we’ll consider the Goodman capital raising. In August and September last year, Goodmans raised $1.3bn in ordinary equity and a further $0.5bn via a new hybrid. These funds were used for additional liquidity and also to reduce the company’s debt. The impact on the hybrid security price is illustrated in the following chart which shows a consistent run-up in price on speculation of the deal culminating in a final spike when it was finally announced.



Source: FIIG Securities

From a credit perspective this significantly decreased the risk of the company. So hybrid investors benefitted from the reduced possibility of the company going broke and/or suspending distributions while ordinary security holders were faced with a massive dilution of their ownership stake in the company – shares on issue increased from approximately 2.8bn to 6.2bn on completion of capital raising.


Summary
Ultimately, hybrids have features of debt and equity, and act accordingly. To say they combine the worst of both isn’t an informed opinion – it’s just plain wrong. While hybrids are subordinated to debt, they sit above equities and typically show less price volatility. Importantly, they pay a defined coupon rate which must be maintained unless suspended altogether. Finally, investors in hybrids are beneficiaries of capital raisings unlike equity holders who wear the pain of capital raisings.





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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

"If I had even the slightest grasp upon my own faculties, I would not make essays, I would make decisions." ― Michel de Montaigne

Said 'Thanks' for this post: wren  mullokintyre  
 
wren
post Posted: Mar 14 2010, 09:44 AM
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In Reply To: pengo's post @ Mar 13 2010, 10:58 AM

pengo,
Directors of all companies can,and frequently do decide not to pay a dividend.You may have noticed a few recently!Generally a company cannot pay a Dividend unless Pref.shares are paid first.
Looking at MXUPA.Brookfield (BAM on NYSE) is an enormous outfit.To not pay a dist.would be very damaging to Brookfield/Multiplex as it would lower their credit rating.
These entities are not,to use your words,'dodgy'.I think you are confusing debt with equity--they are very different animals.
As for "Intelligent Investor"----well their long time great all time stock was TIM,closely followed by GTP and IFM.

There is risk in all investing.The trick is to assess the risk/reward.Equities generally have higher rewards with higher risks than debt instruments.

 
pengo
post Posted: Mar 13 2010, 10:58 AM
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In Reply To: pengo's post @ Mar 13 2010, 10:06 AM

Well after reading that linked article about income securities, I've gone cold to interest rate securities heh.

Lot of them a dodgy financial vehicles, that only benefit the issuer.

Might stick to stocks and divvys.

 
nipper
post Posted: Mar 13 2010, 10:55 AM
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In Reply To: pengo's post @ Mar 12 2010, 02:33 PM

Things to consider

- Most hybrids are floating rate (expressed as BBSW + margin). Some are fixed rate for the life of the security.
- Ability to make distributions (most Hybrids are non-cumulative and hence if they miss a quarter or half yearly payment, its gone. But Hybrids are in front of shareholders, so if a company pays a dividend first, then the Hybrid is paid out ahead.
- Ability to pay out at redemption/ maturity. (Will the company be around in 5 years? If it is taken over, will the buyer settle the debt issue first?)

Such issuance rank above shareholders but are considered subordinated debt, ranking below Senior and then Tier 1, Tier 2 debt. In the event of a company being wound up, the Hybrid cab is one of the last in the rank.

The lower the investment grade, the higher the premium set at time of issue. Then the relative attractiveness depends on marketability/ depth/ liquidity and also credit spreads.

The blowout in Credit spreads early in 2009 created, in hindsight, some not-to-be repeated bargains, as some forced sellers dumped really good assets at great prices.



--------------------
"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

"If I had even the slightest grasp upon my own faculties, I would not make essays, I would make decisions." ― Michel de Montaigne
 
pengo
post Posted: Mar 13 2010, 10:06 AM
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In Reply To: pengo's post @ Mar 13 2010, 09:38 AM

I found this, even tho its out of date its still helpful somewhat: http://www.intelligentinvestor.com.au/arti...rticleID=753887

 


pengo
post Posted: Mar 13 2010, 09:38 AM
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In Reply To: pengo's post @ Mar 13 2010, 08:55 AM

Ok I think I'm starting to understand these securities, I'm guessing its best to shy away from any trading at above their face value? Since their "Face-value" at redemption (when you get your principal capital back) is what is determined to pay you to get your principal capital back? Guess I'll have to find out what their face value was when first listed?



I looked into multiplex and from what I found distributions are totally at the discretion of the board. I dont want to get into a interest rate security that doesnt pay distributions or can choose not too.

The Australand one might be a good one tho.

 
pengo
post Posted: Mar 13 2010, 08:55 AM
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Thanks guys,

I was looking @ AQNHA - AMP GROUP FINANCE SERVICES LIMITED. (Floating rate note)

I would find securities based on whats listed here: http://www.asx.com.au/asx/markets/interest...curityPrices.do

The bonds I was referring to was whats listed under Corporate Bonds.

I dont think there is a min parcel of 500k for the corporat bonds? Its just whats on offer? (like shares).

 
wolverine
post Posted: Mar 12 2010, 07:57 PM
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In Reply To: pengo's post @ Mar 12 2010, 02:33 PM

Hi Pengo

Converting prefs from the bigger companies are pretty much a proxy for bonds for us small guys.



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TOO MANY CHIEFS

NOT ENOUGH INDIANS
 
wren
post Posted: Mar 12 2010, 03:41 PM
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In Reply To: pengo's post @ Mar 12 2010, 02:33 PM

Hi pengo,
Most listed interest rate 'vehicles' are quite illiquid.Bonds are highly liquid but most require an investment of $500 k. (the Bond market is huge--bigger than equities,but it is were the big kids play).To find out about Hybrids,have a look at my post on the TPI thread,23 July 2009:there is a bit of info there.
I like MXUPA:will pay 10% and there is a cap.gain of 22% in the future.AAZPB is very safe:10% div. with a cap.gain of 13% in the offing. Both pay interest quarterly-unfranked. Hope this assists.

 
 


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