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Traderx
14-10-2010, 01:45 PM
Hi all just wondered what your thoughts are on this security.

It yields 1 year swap rate + 1.50% reset every year, int paid quarterly. So current interest is 4.97% and looks like will reset for the next year at a similar level (1 year swaps currently around 3.45%).

Trading at around 61c at the moment (was issued when swap rates were at a high point just prior GFC - surely one of the greatest debt deals done by an NZ corporate - for them).

So this equates to a current yield of about 8.1% pa.

IFT are regularly buying back IFTHAs.

Any increase in swap rates should deliver quite a strong capital gain (reverse of a normal bond) and in the meantimes earns over 8%.. :)

IFT balance sheet is ok and assets are reliable, credit looks good so not too worried about the perpetual nature of them.

Think this provide a good hedge for anyone exposed to rising interest rates and just quite an attractive investment.

What am I missing?

Cheers

disc no holding (yet)

Xerof
14-10-2010, 01:53 PM
I don't think you are missing anything. The margin is clearly now out of synch with reality, but thats reflected in the capital price, and you are correct, the capital value should (in theory) appreciate as the coupon goes up.

The Company love buying them back because the discount goes directly to Retained Earnings line (if my understanding of accounting treatment is correct)

Discl: bgt at 55 cents last year

peat
14-10-2010, 02:54 PM
Any increase in swap rates should deliver quite a strong capital gain (reverse of a normal bond)
a good hedge to rising interest rates
yeh Lizard and I were discussing pref perps.
interesting that is a share, but looks like a bond, but has a direct relationship with interest rates (not inverse)

I guess the downside is if interest rates go lower.

Lizard
15-10-2010, 02:58 PM
I think some of the perpetual prefs/notes are starting to look interesting. There is a hunt for income on in NZ at the present - affecting yields/prices on bonds, property trusts and other income shares. 1 yr swap rates and govt bond rates (against which most of the resets are benchmarked) are falling again, so the perpetuals are not getting much of the money. The income hunt could have another year to run in NZ, as the money gradually released from govt guaranteed debentures figures out where it is going to go.... so we may still see low benchmarks for the next reset and a further squeeze on yield. However, at this point, this is likely to also be offset by more competition for income/price rises in other options.

I'm guessing that some time in the next year (probably not yet) the fall in bond yields will falter and (particularly given the illiquidity) fixed rate bonds (and possibly income shares) could turn quite sharply. At that point, prefs could be a good hedge. Given many have close to a year to run on yields not far off those provided by similar rated fixed-rates, I'm thinking it may be time to start some slow accumulation.

The hardest part with these things is trying to put them on any kind of comparable basis. For instance, the RBOHA are quite likely to be redeemed at some point (2017 was mentioned from memory), but the IFTHA are much less likely - although the IFT buyback provides some liquidity for now. This adds a bit of risk to the IFTHA. Also difficult to keep tabs on the degree of subordination. The margins on most of these over swap rates are pretty low by current standards, so don't expect them to get back to $1 though.

Tim Brown
15-10-2010, 04:34 PM
if you want more information about the PiiBs you should look at the Infratil website http://www.infratil.com/content/view/1941/119/ (http://www.infratil.com/content/view/1941/119/) under the heading “Perpetual Infratil Infrastructure Bonds”

Lizard
15-10-2010, 06:33 PM
Hi Tim and thanks for posting.

Hope you don't mind me asking, but are you The Infratil Tim Brown? (the one that has to put up with the Garfunkel jokes? ;) )

Tim Brown
19-10-2010, 07:28 AM
Yes to both questions.

PJK
20-12-2011, 11:40 AM
OK - the IFTHA (Infratil perps) are currently priced at 52/53 cents to buy $1.00 worth of notes.
And I'm thinking WTF? This seems an inflation proofed bargain sitting on the NZX.

That effectively means that even the current low rate of 4.22% actually returns just over 8%pa to someone who buys in today - and that's an extemely good return isn't it?

Infratil look solid enough - returning regular profits and do not look likely to default on these bonds - and any increase in base interest rates will be matched by the swap resets and a 188% multiplier (due to purchasing them at just 53 cents).

So - what am I missing? Why are IFTHA's priced like this - and still sitting around?
Any advice from more experienced investors would be greatly appreciated ... before I blow my cash!
;)

macduffy
20-12-2011, 12:14 PM
PJK - see Lizard's post of 15/10/10 above.

Perpetuals subject to interest rate re-sets tend to suffer in times of low interest rates. Some holders get nervous, anticipating lower rates still; some will need to sell for whatever reason. Potential buyers have similar worries so buyer demand tends to dry up, forcing the price down and the yield up. More a reflection of the instrument and the market, rather than the issuer.

Penfold
20-12-2011, 09:10 PM
There's a level of complexity to floating rate instruments that make them harder to price. The fact perpetuals have no maturity date also doesn't help. And then there's concern over subordination, issuer rating etc. It deters some investors I would suspect.

I personally like these... yielding over 8%, buy back on, counterparty generating good cashflows. I purchased 20,000 more a few weeks ago at .56 and thought I got a bargain.

Don't forget these trade on a dirty price. So to work out the yield you need to deduct the accrued interest.

Lizard
10-01-2012, 10:36 AM
I was surprised to read Chris Lee speculating that IFT should consider re-structuring the terms of the interest re-set on these securities to show leadership amongst the issuers of indexed securities (banks, Origin). Issuers of these securities have incidentally benefited from an unforeseen change in dynamic between interest rates on wholesale and retail funding rates due to Basel requirements. As I read it, he suggested that retaining adherence to the current formula was inappropriate, unethical and exploitative, given that it now results in subordinated debt being rolled over at interest rates below those of current higher-ranking issues.

It will be interesting to find out if that comment was based solely on wishful thinking.

macduffy
10-01-2012, 11:34 AM
Probably a combination of wishful thinking and talking his own - or rather, his clients' - book!

A bit much to expect an issuer to change the terms of an issue because conditions/circumstances move in its favour. We wouldn't expect investors to agree to changes if the situation was reversed.

Does Chris Lee have much credibility these days?

modandm
11-01-2012, 06:30 AM
by the way tim - you should be ashamed of the article you wrote for the herald.

If anyone missed it - tim argues against mandatory ratings for debt issues to retail punters arguing:

1. The rating agencies messed up with the GFC so why trust them
2. Ratings just give advisors a cop-out
3. Ratings are expensive to get

My view on things is this:

Does having mandatory ratings increase the protection of retail investors?
Does it do so at a reasonable cost?

THE ANSWER IS YES!

A cynic might wonder what IFT's currently listed bonds would be rated as. It seems to me not too highly. Perhaps IFT prefers to pull the wool over mum and dads eyes. SHAME!!

Lizard
11-01-2012, 07:52 AM
I just came across this on the IFT web-site which gives their response on the issue of IFTHA interest rates:
http://www.infratil.com/content/view/2868/155/

Their main argument seems to be that fixing the terms in any straight-up way involves a transfer of value from shareholders to bond holders, given that the current market price for IFTHA is around 55cps. This seems a somewhat one-side argument, given shareholders have benefited from an unforeseen transfer of value to them via both lower interest paid and via the company buying back on market at a substantial discount. And I am guessing only a small proportion of bonds will have changed hands from the original holders.

A return to "expected" interest rates (i.e. investors could have expected these subordinated bonds to give them at least a 1.5% premium to a bank term deposit) would cost IFT less than $4m per year - a value which they've already saved for the past few years.

In 2009, the IFT notes to the accounts assigned a value of $420m to the contractual cashflows on the bonds (before that, I doubt that the accounts gave a figure, but, if IFRS had been in use, the amount would likely have been considerably higher). Just two years later, in 2011, the value of contractual cashflows has fallen to $334m - and given they are perpetual, this can't be attributed to cashflows paid.

I am not arguing that they should necessarily change the structure of the IFTHA's to suit conditions, I am simply suggesting that their "transfer of value" argument for not undertaking a restructuring in favour of bondholders is fallacious given that it would simply be reversing an unforeseen transfer of value that has already occurred.

While it can be argued that these things can go either way - and bondholders just got unlucky this time - it should be borne in mind that IFT retained the option to redeem for cash on notice (at the higher of face value or market value) and would no doubt have chosen to hurriedly do so if unforeseen circumstances had sent luck the other way.

westerly
11-01-2012, 11:17 AM
by the way tim - you should be ashamed of the article you wrote for the herald.

If anyone missed it - tim argues against mandatory ratings for debt issues to retail punters arguing:

1. The rating agencies messed up with the GFC so why trust them
2. Ratings just give advisors a cop-out
3. Ratings are expensive to get

My view on things is this:

Does having mandatory ratings increase the protection of retail investors?
Does it do so at a reasonable cost?

THE ANSWER IS YES!

A cynic might wonder what IFT's currently listed bonds would be rated as. It seems to me not too highly. Perhaps IFT prefers to pull the wool over mum and dads eyes. SHAME!!

I have found Infratil one of the better communicators of information about their Company and cannot see any real reason to criticize the article.
Rating agencies have definitely failed in their assessments at various times and one can wonder just how independent they really are.
As the saying goes do your own research. As for the IFT perps I think there is no real reason why they should change the conditions. Chris Lee is being a wee bit optimistic.

Westerly

Xerof
11-01-2012, 02:08 PM
Must say I agree with those sentiments Westerly, with the exception of Lee being a wee bit optimistic - his suggestion is ludicrous...

The 'problem' with the Perps pricing is partly to do with absolute levels of interest rates, but IMO, far more to do with credit risk pricing movements since these were issued. The 'credit risk' margin that the market was offered and accepted at Issue was 150 pips above the benchmark one year swap rate. That is no longer appropriate in todays market - it's more like 500 basis pips (as is being paid on their fixed term bonds issued at ~8.0% (~3.0% market base rate plus ~5.0% implied IFT credit margin) So, to achieve that yield, the price must be ~54 cents for the $1

For those who buy now, they hold some comfort that the Perps are pricing the Infratil credit risk a whole lot better, and unless credit markets get worse (possible) then the downside is limited. Holders will pick up the narrowing of credit spreads going forward, plus any benefit from the 'normalisation' of base rates, where the returns will be magnified by the deep discount currently available.

By that I mean:

If today you buy IFTHA's at 54 cents for FV of $1.00, your coupon is 4.22%, but your yield is 7.81% (ignore the dirty pricing issue)

If rates rise to 10%, the coupon rises to 11.5%, but your yield balloons out to a very tidy 21.3%


I do have one issue with Tim's comments regarding 'fairness' to shareholders with regard to the buy-backs - these securities are hybrid, and I would like to be considered as more of a shareholder, not a bondholder. To say therefore that shareholders are benefiting from the buy-backs when ONLY ordinary shareholders take the benefit, sticks in my craw


Discl: hold at 55 and 58, and will accumulate more in due course

CJ
12-01-2012, 06:07 AM
As a shareholder (of Ords - for Xerof purposes), I would be annoyed if they did change the terms. The terms were well published at the time they were issued.

Many holders of debt did much worse out of the GFC than IFTHA holders who have just been screwed as the spread has widened. At least the debt is still worth something!

Enumerate
12-01-2012, 10:52 AM
You could argue that there is a "moral hazard" in allowing Infratil to buy back the perpetuals at the discounted price.

Market "convention" is that perpetuals are rarely "perpetual". They are usually redeemed, in full, at some point. Infratil controls this "intervention" - given they are profiting from collapse in bank bill swap rate given to the real market risk price - there is moral hazard in their at market purchases.

Lizard
14-01-2012, 07:17 AM
Been thinking about this one further, to determine my view on whether IFT should show some greater degree of concern for bondholders.

Firstly, as I see it, the main problem for investors is not in itself the low interest rate, but the unexpectedly high fall in the face value that results from the comparison between the interest now available on IFTHA and other available issues of similar ranking. With a fixed rate bond, holders expect the face-value to change, maybe by 5-10% over the life of the bond as interest rates change. It may change more dramatically if the financial status of the issuer changes. However, with a perpetual with annual reset, holders are looking to have more stability in their capital but accepting the variation in their income, although aware that a change in the financial status of the issuer would have some impact.

However, the fall in face value has not been caused by IFT becoming less financially sound. Nor has it been caused by the fall in the interest rate per se - which has tracked the OCR cuts as it would be expected to. What is unexpected it that retail deposits and other more secure forms of debt did not absorb all the cuts in OCR. This resulted in the historical difference of the benchmark rate at around 50bp above deposits crossing over to become a 150bp spread in the other direction. Chart below from the RBNZ (http://www.rbnz.govt.nz/monpol/3683652.pdf):

3751

The result is that the IFTHA's now attract about 200bp less interest than they would have had the historical relationship stayed the same. If this had been applied today, IFTHA's would be attracting about 6.22% interest - which is probably closer to what holders would be expecting at this point in the cycle.

Now I don't understand completely why this happened. The question is, whether it is cyclical, a structural change or a transitory change?

If it is a cyclical change, then how long is the typical cycle and could issuers have guessed they were at a peak? It doesn't look particularly cyclical from that chart though, as the gap was fairly consistent over more than one business cycle. If a longer term series could show that it is cyclical, then issuers may have outsmarted investors - which is not the way a company like IFT which regularly goes back to the market might like to be perceived and may want to give some consideration to restoring their tarnished image. (It would be interesting to know how well their current bond issue is being taken up.)

If it is a structural change, then either it was foreseen by issuers (in which case they really do deserve to be distrusted from now on) or it was unforeseen, in which case you would think that there would not be any resistance from IFT at all in coming forward, stating that it was unintended consequence of structural change and proceeding to offer a solution that restores interest to around the expected 6.22% mark.

If it is a transitory change, then IFT are correct to assert that eventually the balance is likely to be restored, deposit rates will fall below wholesale rates, the premium in the IFTHA's will return and their face value will be (somewhat) restored. In that case, I can agree with IFT that the wisest course of action is to do nothing, as any attempt to alter the formula risks making things worse.

I would be interested if anyone can shed more light on whether the change in relative rates is likely to be cyclical, structural or transitory.

macduffy
14-01-2012, 02:15 PM
Great post, Liz!

No, I've got no idea what the answer is to your question - something akin to the meaning of life! My hunch is that we won't know until future events play out and that IFT have just got lucky with abnormally low rates - as indeed it could be said for any borrower paying market rates these days while inflation continues merrily along. I don't think we can credit IFT's Treasury with any particular foresight in this regard, however much we may admire their management. (I do)

It also makes a lot of sense, of course, for the company to buy back and retire these securities at current prices, assuming that they can replace the funds at a comparable rate. Can't blame them for doing this but it doesn't necessarily mean that it's also a good buy for private investors unless one is convinced that these low rates are a cyclical or transitory phenomenon.

D B Cooper
20-07-2012, 07:46 PM
Sad to hear that Tim Brown - Head of Capital Markets at Infratil and a previous contributor to this thread was knocked over and seriously injured by a bus in downtown Wellington - Lets hope that he makes a speedy recovery.

http://www.stuff.co.nz/national/7312700/Bus-lane-victim-runs-the-company

D B Cooper
07-02-2013, 02:06 AM
Nice gain on IFTHA - 60c now as the 1 year swap rate rises so does IFTHA as the reset will be that much higher

bondholder007
09-03-2013, 04:11 PM
An interesting discussion. I bought IFTHA in 2007 when it was showing about 9% yield. A year or two back I read Chris Lee's suggestion that IFT should do something to help bondholders and had an email debate with Tim Brown. He of course used the "it will disadvantage shareholders" argument. Anyway yield is now down to 3.97% so on the principle that if you can beat them you join them I bought another batch at the discounted price. These show 6.75% which is about market average at present.

As has been pointed out above once the swap rate rises IFTHAs will start to look good. This assumes of course that IFT dont cash them up. There is sure to be clause in the deal somewhere that allows this.

Bonds should be an important part of any NZ portfolio because of their relative security and high yield by world standards but you have to know how they work. I also have another "perp" RCSHA (Rabo) which is yielding 8.32% currently. Their reset date is sometime in 2014 and I will need to follow the price trend and bail out if necessary.

Re "relative security" I got burnt with Blue Star but that's abnormal. Cheers

Stranger_Danger
09-03-2013, 10:09 PM
IFT can cash mine up at $1.00 any time they want.

Grimy
10-03-2013, 09:09 AM
Yep. I'm happy either way having bought at low prices. Buy them back at a dollar or wait for the % rate to rise (along with the expected rise in unit price). And in the meantime not a bad % rate return.

BIRMANBOY
10-03-2013, 08:41 PM
Re RCSHA I worked out what the final annual yield would be if called in 2019 and assuming buying at todays price and assuming 5 year strike rate of todays rate. Would return annual of 6.2% on your original in price I believe. This is decent yield and one might also consider IFT150, IFT160, IFT170 and IFT 090..all of these look at 6.3 to 6.5 % based on current priceing. I will be looking at taking my BISHA returns this month and trying one of these
An interesting discussion. I bought IFTHA in 2007 when it was showing about 9% yield. A year or two back I read Chris Lee's suggestion that IFT should do something to help bondholders and had an email debate with Tim Brown. He of course used the "it will disadvantage shareholders" argument. Anyway yield is now down to 3.97% so on the principle that if you can beat them you join them I bought another batch at the discounted price. These show 6.75% which is about market average at present.

As has been pointed out above once the swap rate rises IFTHAs will start to look good. This assumes of course that IFT dont cash them up. There is sure to be clause in the deal somewhere that allows this.

Bonds should be an important part of any NZ portfolio because of their relative security and high yield by world standards but you have to know how they work. I also have another "perp" RCSHA (Rabo) which is yielding 8.32% currently. Their reset date is sometime in 2014 and I will need to follow the price trend and bail out if necessary.

Re "relative security" I got burnt with Blue Star but that's abnormal. Cheers

kiwitrev
24-07-2015, 08:43 AM
A lot of great posts on this thread but nothing for the past 2.5 years. Looking for a home for a sizeable sum in bonds and have done a lot of homework inc. ANBHB IAGHA and now looking at IFTHA. The one big advantage IFTHA have over others is they are unlikely to be redeemed in the short term at current market value whereas fully priced bonds are always at risk from redemption. No doubt coupon will be lower in next reset but still will give a favourable return compared to the market in general. So as interest rates sink how low will the market value the bond now? It seems to me if one is prepared (and can do so) to hold for as long as it takes these will come good when??? interest rates eventually rise-in fact be very good.

Xerof
24-07-2015, 10:00 AM
2.5 years - yes these aren't exactly instruments to watch and comment on, on a regular basis. For the fixed interest part of a portfolio, these are quite good if you have the patience of Job and the time horizon to hold.

I didn't accumulate any more beyond those I held at 55 and 58 (see my last post) and they got ditched about a year ago, when it became apparent rates weren't going any higher.

Trev, not sure the cycle has bottomed quite yet, but it's close IMO. The market is already moving to price in a 2.5%OCR, and given the coupon will be reset lower, todays price may not yet be a good entry. I'm hoping to get some in to yield around 7% so assuming next coupon is ~4.3% so price needs to be under 62 for me to want to re-enter. Others may be happy with a lower yield, given the coupon is reset annually, so I may not get them.

you're obviously aware these behave differently to regular bonds, due to the combination of rate reset and perpetuity, so if rates rise, price should also rise, and vicky verka.

Timbo Brown is clearly unmoved by the protestations from various interests about the 'unfairness' of it all, so holders need to be prepared to hold and/or trade on long horizons.

kiwitrev
24-07-2015, 02:04 PM
Thanks for your thoughts Xerof. As you have been in this one for some time what would you expect the bond to be trimmed by when next goes ex div?

Xerof
24-07-2015, 03:58 PM
Thanks for your thoughts Xerof. As you have been in this one for some time what would you expect the bond to be trimmed by when next goes ex div? 1.315 cents, i.e. the gross quarterly interest per $. The NZX will adjust the closing price to X-1.315, but who knows what the market will do the next day as far as pricing is concerned - these instruments are very illiquid

kiwitrev
09-10-2015, 10:26 AM
Interesting time coming shortly for this bond. Next annual reset due 15 November. Mechanism for reset is margin of 1.5% over 1 yr swap. By my calculation the current efective interest rate is 7.7% on paid interest rate 5.26%. For this bond to return 7.7% after next reset a dramatic adjustment would be required to the buy/sell price on NZDX. If I have got my calculations right these are the scenarios.
If OCR stays at 2.75% and current 1 yr swap 2.7% then interest rate will be 4.2%. The market price on the bond would have to be 55 per 100.
If the OCR goes to 2.5% - assuming 1 yr swap is 2.45% interest rate becomes 3.95% and market price would be 52 per 100.
These calulations done purely for estimating maintaining the current effective interest rate when next reset comes into play. Anybody see it any differently.

freddagg
09-10-2015, 12:41 PM
I think most of the coming reset will already be priced in.
Assuming the reset is at 4.2% and using the current bond price of $68.25 the yield will be about 6.1%. Most IFT bonds are yielding 4.5 to 5% so 6.1% looks pretty good to me.
Guess it depends on what you think swap rates will do in the future, 3 and 4 year swaps are only a little higher than 1 year.
I hold a few and will be pretty happy with 6.1%. If they drop to $52 I will be buying a lot.

kiwitrev
09-10-2015, 01:53 PM
I don't think so. Look at the interactive chart on NZX. Two yrs ago 68 rising to 78 Dec. 2014 and today 68. I'll be flabbergasted if not a big correction

kiwitrev
09-10-2015, 02:14 PM
Found another chart ASB Sec. fixed interest. During period 2012 to 2013 1 yr swap around 2.45 to 2.5% and IFTHA trading at 52 would suggest to me my calcs approx. correct

BlackCross
13-10-2015, 10:47 AM
Company bought some back

Perpetual Infratil Infrastructure Bonds Buyback8:44am, 13 Oct 2015 | BUYBACKInfratil Limited advises that it has acquired its own securities. The following information is provided in accordance with Listing Rule 7.12.1:
Class of security: Perpetual Infratil Infrastructure Bonds
ISIN: NZIFTD0020S9
Number of Perpetual Bonds acquired: 1,451,600
Acquisition Price (average): $0.69
Payment: In cash
Amount paid up: Perpetual Infratil Infrastructure Bonds
Percentage of the total class of securities issued (after the acquisition): 0.62%
Reason for the acquisition: Considered by the Directors to be in the best interests of the Company and shareholders.

Harvey Specter
13-10-2015, 10:50 AM
Company bought some back Sneaky - pay 69c and eliminate a $1 liability. Indicates it is unlikely they will ever repurchase at face value.

GTM 3442
13-10-2015, 05:45 PM
Sneaky - pay 69c and eliminate a $1 liability. Indicates it is unlikely they will ever repurchase at face value.

If I remember correctly, they've been doing this for a few years now, off and on. No wonder the price has gone up so much since I bought them. . .

kiwitrev
16-03-2016, 10:42 AM
Looking ahead a bit to November reset. If OCR goes t0 2% by then new coupon likely to be about 3.5%-currently 4.26%. Buyers and sellers of this bond should pay attention to this fact.

freddagg
16-03-2016, 02:30 PM
I am paying attention to the one year swap rate, that"s what it will be reset on in Mid November.

kiwitrev
16-03-2016, 03:15 PM
I am paying attention to the one year swap rate, that"s what it will be reset on in Mid November.
Of course it is but you will find the OCR and 1yr swap are almost joined at the hip

Grimy
26-03-2016, 05:43 PM
Having bought at about 70 cents it still gives a 5% return at 3.5% coupon, so acceptable to me in the current climate.

GTM 3442
27-03-2016, 04:45 PM
I have some of these in the bond portfolio for two reasons.

Firstly as a hedge against inflation. Inflation raises interests rates, which is good for IFTHA. Secondly, the price discount means a better interest rate than the "coupon" rate, which is good for me.

But I will admit that I haven't bought any since the price went over 6500.

Oh, and thirdly, Infratil continue to buy them back on-market, which helps provide a little support to the price.

Grimy
01-04-2016, 07:24 PM
Just checked properly and my average is 64 cents, so almost five and a half % return. Bought a few more today at 66.95.

Traderx
19-08-2016, 07:51 AM
IFTHA down to 60ish along with the outlook for rates, reset upcoming may be to circa 3.5% so effective circa 5.8% at current market value. Still seems attractive but obv the market is risk averse with an ever lower long term outlook for rates.

Grimy
20-08-2016, 09:53 AM
I bought a few more yesterday. I still feel the return is pretty good at current price and probably keeps my average around the 63-64 cent mark. I am getting close to being overweight in IFT bonds in general, but as the fixed term bonds mature I can decide whether to reduce or hold at current portfolio%. I don't think I've finished buying IFTHA just yet...

Grimy
20-08-2016, 09:57 AM
And however far the OCR and bank rates fall, I'm guessing the rate on these will look attractive enough in comparison. It would be nice if the 1.5% was a bit higher, but it is what it is and I'm always happy when payment date rolls around.

bottomfeeder
05-05-2017, 11:59 AM
I hold a few of these, bought and sold at varying prices. While the margin over and above the 1 year swap rate is only 1.5%, as interest rates go down the margin increases in percentage. At the moment currently at 3.63% (swap rate 2.13) the margin is at 70%. if the swap rate goes up to 5% then the margin is 30%. I would imagine then that the value of these should increase in a low interest rate environment and decrease somewhat in a higher rate environment. Maybe this is what happened years ago as I see previous posters buying a .55. Has gone as high as .78 in recent year or so.

Another thing I dont understand is when we get close to the interest payment date at CI. The price seems to go down. I would have thought it would go up. After all you are buying bonds at thr quoted price and then get the interest shortly. The contract note specifies the interest taken away from the quoted price and leaves a lower figure for purchase of the capital stock. When it goes ex the price remains the same sowewhat and after a month or so, they increase in price. It seems to me at least that that is the trend. Why.

IFT must be careful when buying back because they dont want the value to rise too much. What a good buy for the company. $1-00 bonds at 63 cents.

I believe unlike other bonds issued by IFT, they can never be tranferred to shares, which if the company shareprice is suffering they will change debt to equity. For this reason I dont think I would like the other bonds issued by the company. Anybody still holding these. I like the yearly reset so it keeps up with the inflationary chages more quickly that five year bonds.

kiwitrev
16-08-2017, 10:52 AM
I hold a few of these, bought and sold at varying prices. While the margin over and above the 1 year swap rate is only 1.5%, as interest rates go down the margin increases in percentage. At the moment currently at 3.63% (swap rate 2.13) the margin is at 70%. if the swap rate goes up to 5% then the margin is 30%. I would imagine then that the value of these should increase in a low interest rate environment and decrease somewhat in a higher rate environment. Maybe this is what happened years ago as I see previous posters buying a .55. Has gone as high as .78 in recent year or so.

Another thing I dont understand is when we get close to the interest payment date at CI. The price seems to go down. I would have thought it would go up. After all you are buying bonds at thr quoted price and then get the interest shortly. The contract note specifies the interest taken away from the quoted price and leaves a lower figure for purchase of the capital stock. When it goes ex the price remains the same sowewhat and after a month or so, they increase in price. It seems to me at least that that is the trend. Why.

IFT must be careful when buying back because they dont want the value to rise too much. What a good buy for the company. $1-00 bonds at 63 cents.

I believe unlike other bonds issued by IFT, they can never be tranferred to shares, which if the company shareprice is suffering they will change debt to equity. For this reason I dont think I would like the other bonds issued by the company. Anybody still holding these. I like the yearly reset so it keeps up with the inflationary chages more quickly that five year bonds.

Hi BF
Don't expect changing debt to equity a likely scenario. Worth revisiting Infratil long explanation of the history of IFTHA and possible outcomes.
http://infratil.com/assets/Uploads/PiiB-July-2016.pdf

GTM 3442
24-08-2017, 07:14 PM
Hi BF
Don't expect changing debt to equity a likely scenario. Worth revisiting Infratil long explanation of the history of IFTHA and possible outcomes.
http://infratil.com/assets/Uploads/PiiB-July-2016.pdf

I feel sorry for the poor b*ggers who bought these at time of issue, and I suspect that a good proportion of those folk didn't understand what they were buying.

I hold some of these in the bond portfolio. They're in there because sometimes they are cheap, and because the floating rate works as a hedge against inflation.

But that's only the case if you buy 'em well below face value.

Xerof
05-10-2017, 07:17 PM
What's with the sudden increase in price and volume? Surely Tim Brown's not thinking of doing the unthinkable....

kiwitrev
06-10-2017, 08:42 AM
The answer is simple-Never. However like you i'm surprised by current move in price given the next reset in the interest rate later this year will likely be less than currently being paid which is 3.63%. Mechanism for reset is 1.5% plus 1yr swap currently at about 2%, maybe marginally higher. Delicate balance between low interest rate environment and maybe some inflation?? to come given USA signalling rate increases December and beyond.

peat
06-10-2017, 10:42 AM
What's with the sudden increase in price and volume? Surely Tim Brown's not thinking of doing the unthinkable....

Did you spot the gartley ?

freddagg
08-10-2017, 08:41 AM
What's with the sudden increase in price and volume? Surely Tim Brown's not thinking of doing the unthinkable....

Likely the money from the upcoming RBOHA repayment looking for a new home.
ASBPA and ASBPB are up as well

kiwitrev
10-10-2017, 12:53 PM
Likely the money from the upcoming RBOHA repayment looking for a new home.
ASBPA and ASBPB are up as well

As are all the other fixed income entities on my watchlist, so a sector move.

kiwitrev
24-11-2017, 09:48 AM
As are all the other fixed income entities on my watchlist, so a sector move.

Reserve Bank signalling benign inflation and no imminent rate increases so would appear to be contradictory to recent expectation in bond market and increased cost to buy on NZDX. IFTHA now on new 1yr cycle coupon 3.5% but 1yr swap today 1.99% indicates a downward trend.

Jaa
28-05-2020, 03:16 PM
Anyone know what happens if the 1yr swap rate goes negative at reset time in November?

Will the coupon stay fixed at 1.5% or could a negative swap rate exist of say -0.5% plus 1.5% thus giving a coupon of 1%?

Grimy
28-05-2020, 09:58 PM
I've just had a look at the IFTHA Information Flyer. Nothing mentioned apart from the 1.5% margin. So I'm guessing if interest rates went to negative then the margin would be on top of that as in your example.
Some later issues have stated that an interest rate will not go below a certain % value. But certainly can't find anything like that for the IFTHA bonds.

Jaa
29-05-2020, 03:41 AM
Thanks Grimy, guess we will know in November. 1yr swap rates hit 0.18% last week.

GTM 3442
07-06-2020, 09:23 PM
I suspect that few people here bought these at issue, or at anything much over 60c in the dollar, so even on it's own, that 1.5% margin isn't looking too shabby.

Jaa
22-09-2020, 02:48 PM
1yr swap currently at 0.13%.

If it drops below -1.5%, will holders have to pay Infratil? :t_up:

Gonzo
09-10-2020, 08:38 PM
interesting bit in Chris lee commentary yesterday 8th october
https://www.chrislee.co.nz/taking-stock