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Lizard
02-03-2012, 02:40 PM
What do the experts think? Is it time to swap the Fixed rate securities (e.g. FCG010) for the now discounted re-sets?

(and, if so, which re-sets?). I've bought into a few re-sets prematurely (and lost more money), but haven't sold any of the fixed rate ones - except the GFN030's (doubt they'll have sufficient cash in time to redeem them all and don't fancy getting a roll-over or GPG shares in current situation).

Thoughts?

macduffy
02-03-2012, 07:56 PM
I don't have a view on your question, Liz ( time to swap fixed rates for re-sets?) - but for what it's worth, Macquaries estimate GPG's net cash on hand, after settlement for the TUR shares, at $108.5M. (Cash $513.4m minus Cap Notes $404.9m ).

Doesn't leave much for a capital distribution, without further asset sales, which leads me to believe that a specie distribution of the Coats shares is a real possibility. But that's another issue!

Lizard
02-03-2012, 08:25 PM
I don't have a view on your question, Liz ( time to swap fixed rates for re-sets?) - but for what it's worth, Macquaries estimate GPG's net cash on hand, after settlement for the TUR shares, at $108.5M. (Cash $513.4m minus Cap Notes $404.9m ).

Doesn't leave much for a capital distribution, without further asset sales, which leads me to believe that a specie distribution of the Coats shares is a real possibility. But that's another issue!

Well it seems to me from what they've said to date, that it might be a big assumption that they repay the 030's and don't just offer a rollover package that might force holders into converting if they want out... then again, there is a clause for the trustee to request repayment if GPG is in liquidation...does it only count if liquidators are actually appointed rather than management liquidating?

Anyway, with them trading above face value, I decided not to stay around to find out.

Penfold
02-03-2012, 09:04 PM
I sold off my Genesis fixed bonds today... and last month bought Infratil and Origin floaters (second tier stuff not for everyone). The swap curves are steepening and the floaters are starting to look cheap. That said it could all unwind tomorrow. The buy orders are building for a lot of the floaters...

There's still some fixed bargains out there too... got some of the PINSA last month. Yielding 15% to maturity (capital guaranteed by the RBS/UK gov). And the APN bonds yielding 11% recently have suddenly been bid in to 10%.

You need a strong stomach for some of this stuff.

If you want to stay fixed you could go TD's. They are pricing 100 over for a 150 day exposure. If rates continue climbing, at least you won't take a battering.

D B Cooper
02-03-2012, 09:42 PM
Yes I think it is time to stock up on discounted resets. We have reached the bottom, and the only way is up from here. I purchased some IFTHA at 0.54 which I think is a bargain. Also good to diversify your portfolio with a mix.

Thanks for the heads up on possible repayment issues on the GFN030s. I had not thought there would be any problems with repayment.

Disc: Hold IFTHA and GFN030

Lizard
03-03-2012, 08:01 AM
There's still some fixed bargains out there too... got some of the PINSA last month. Yielding 15% to maturity (capital guaranteed by the RBS/UK gov). And the APN bonds yielding 11% recently have suddenly been bid in to 10%.

You need a strong stomach for some of this stuff.


Yes, I got some of the PINZ B (PNZFB) the other day at 83c for a 9.8%pa to maturity (less brokerage). Lower rate but longer period - Jan 2014 instead of 2013. Think Barclays are guarantor there.


Yes I think it is time to stock up on discounted resets. We have reached the bottom, and the only way is up from here. I purchased some IFTHA at 0.54 which I think is a bargain. Also good to diversify your portfolio with a mix.

Thanks for the heads up on possible repayment issues on the GFN030s. I had not thought there would be any problems with repayment.

Thanks - yes, I have some IFTHA at progressively lower prices, but since they are down still further, I could probably buy some more... The finer points of some of fixed interest vs the achievable returns must make them only for masochists! No wonder Aussies don't generally have much in bonds in their super funds (according to the typical portfolio mix Old Rider posted elsewhere).

I am just being ultra-cautious with the GFN030's - just my reading of the way they were dividing the cash in the last report did not imply funds for full repayment unless further major asset sales were achieved. Given their comments on issues around some of their bigger holdings, it did not sound too likely that those were imminent and therefore likely to settle in time, but it is early days.

GTM 3442
03-03-2012, 05:26 PM
Definitely not an expert, Lizard.

But perpetuals are a part of my holding - after all, IFTHA at $0.54 is yielding about 7.5%, which is worth having.

There remains the risk if further interest rate cuts - remember that NZ has a relatively high OCR - and subsequent capital loss.

And there is the "inflation" scenario. Over time it will become politically impossible for governments to pay their debts by continued austerity, and the option would seem to be paying their debts by inflation. With the accompanying capital gain (albeit inflation-eroded).

So the question may become one of the proportion of fixed/floaters, rather than a choice between them.

GTM 3442
03-03-2012, 10:32 PM
Ah, Lizard, you asked for suggestions too. How about the ANZ's ANBHA's ? You'll have to wait until after the 2013 reset, of course.

Penfold
04-03-2012, 07:11 AM
Ah, Lizard, you asked for suggestions too. How about the ANZ's ANBHA's ? You'll have to wait until after the 2013 reset, of course.

Been watching those lately. ANZ can call in 2013. Pricing would suggest others think this will happen (or maybe they are just short-sighted and focused on the current yield, so not selling). But lately its margin has moved out a little. Makes you think you may be holding them until 2018 with a coupon around 6%. That seems crazy to me given these look to be a shade above equity. I would look elsewhere unless you know the call is 99.9% likely.

Lizard
04-03-2012, 08:47 AM
Penfold, I think that is what GTM is suggesting by saying I wait till after 2013... i.e. that they will then trade well below face value.

I'm aware of these, as my mother has a few.

Which brings me to the question as to where most of you find your information on bonds/notes/prefs and, in particular, the important part - what happens on "maturity" and/or what the rights of holders are to repayment?

I find this quite difficult - some bonds prospectus' can be found on the companies office, but this is not always the case. Also, to identify the prospectus usually means identifying first the date the bond was issued - this used to be on the NZX web-site for listed bonds, but now is not. So I end up going back through the "news" on Stocknessmonster, trying to find the issue date first and then looking on the companies website - mostly successfully, but not always.

Penfold
04-03-2012, 09:22 AM
I did see that GTM did note that they should be bought after next reset... at that point it will be easier to reval. Then you would have to assume it would be called (Its hard to believe ANZ really would let it move to resetting quarterly). Its still expensive Jr Sub-debt. ANZ just called some of their sub-debt on Friday. And they replaced it with senior stuff. Maybe it will be called in 13?

It can be a mission to get info. Just ring around dealers and issuers, if they aren't up on the companies website. I wouldn't invest in anything non-vanilla, if I hadn't read the IM. There can be so many hooks in these things... that amount of stuff with free (or near to it) optionality that was issued pre-GFC is scarey.... Buyer beware.

Revisited the PINS B yesterday after your comment you had bought some. They are looking nicely priced. I will look at picking some up in the coming months. This company is a classic hard to get info from. I ended up having to ring the company secretary in Sydney.

GTM 3442
04-03-2012, 03:37 PM
Why would ANZ call the ANBHA's in 2013 when they can do what Infratil are doing with the IFTHA's and buy them back at $0.54 in the dollar, while paying 4.22% as opposed to the 9%-odd at the time of issue ?

Suspect that ANBHA may trade at a higher price than IFTHA, due to the greater perceived security of ANZ re Infratil.

Penfold
04-03-2012, 05:01 PM
They would likely not do what Infratil did, or nobody would touch future issues. FR Sub-debt is possibly more important to a bank than an investment company. Also you would have to read the IM; they may not be able to buy them back outside of a call date (at face).

They will trade differently because of the underlying entity as you say, but also the reset margins, call dates, buy backs, ratings, subordination... These things that aren't vanilla can be had to price (and can offer value as a result). I would still buy the IFTHA over the ANZ issue. And like I said to Liz, short dated TD's might be the best option.

GTM 3442
04-03-2012, 05:50 PM
Penfold, I think that perpetuals have garnered a sufficiently bad press over the past few years that there is little likelihood of future issues of this type of instrument.

We have moved from a "high" interest rate environment to a "low" interest rate environment. As the change has happened, there are a lot of people who have made capital losses because of the declining price, coupled with an income which has declined with the re-sets.

I can't see how anyone in their right mind would buy these things at face value and set themselves up for a classic double-whammy.

Penfold
04-03-2012, 06:11 PM
GTM I remember people saying 20 years ago that nobody would invest in finance companies again.

These perpertuals have a place in company financing. Someone will find a way to make them work again. And investors will line up again.

GTM 3442
04-03-2012, 10:28 PM
Penfold - sad but true.

D B Cooper
04-03-2012, 11:50 PM
Lizard- Chris Lee's website has a page where he has attached the original prospectus in a pdf file for each bond. I find it very useful.

http://www.chrislee.co.nz/index.php?page=current-investments

GTM 3442
05-03-2012, 01:53 AM
Thank you very much indeed Mister Cooper !

Fred114
12-03-2012, 12:39 PM
Isn't the reason that the refix's are discounted is that the banks are signed up to new bank capital adequacy rules which require them to progressively reduce the capital contribution made by what are called ‘ hybrid securities’ of which RCSHA is one. This means that would take a haircut on yield at the swap rate.

Lizard
22-03-2012, 05:12 PM
What do the experts think? Is it time to swap the Fixed rate securities (e.g. FCG010) for the now discounted re-sets?



Re-sets been moving up strongly since this thread was started, so I guess I can now conclude the correct answer was "yes".

...Or at least the correct short term answer.

ASBPB up from 59cps to 70cps... RBOHA from 75cps to 82cps... IFTHA the laggard, from about 53cps to 56cps.

Penfold
22-03-2012, 07:23 PM
Look's like some institutions are coming in and buying them... big orders going in.

Still don't quite follow the desire to own RBOHA.

I have been wondering given the uncertainty around the place of tier 2 capital on bank balance sheets, will this perpetuals get called at the first opportunity?

Xerof
22-03-2012, 08:10 PM
That seems to be the driver Penfold. Yielding ~11% assuming called at par in 2017 at current coupon.

Risk is they don't call......but good odds IMO

Lizard
13-11-2013, 04:06 PM
Re-sets been moving up strongly since this thread was started, so I guess I can now conclude the correct answer was "yes".

...Or at least the correct short term answer.

ASBPB up from 59cps to 70cps... RBOHA from 75cps to 82cps... IFTHA the laggard, from about 53cps to 56cps.

After an initial surge back in March 2012, the re-sets have bounced around a bit but now once again on the rise. ASBPB now 83cps, RBOHA 90cps, IFTHA 69cps and WKSHA finally back to face value at $1. Re-set interest rates are now on the rise, and, as I see it, the window to buy re-sets at "safe" rates may be starting to close. Right now, relative to market price, the re-sets appear to be yielding similarly to fixed term bonds of a similar risk. Should interest rates rise, the re-sets should be in a position to hold their market value while fixed term bonds can be expected to fall.

I have been adding to my holdings in recent months to obtain higher, more liquid term returns than term deposits, while hoping that they will hold value better than equities should the market fall.

Lizard
18-11-2013, 03:33 PM
The rush for re-sets seems to have continued, with nothing on offer for ASBPB or WKSHA. There is currently a 5cps spread on ASBPA bid/offer and nearly 4cps spread on the IFTHA, with 3cps on the OCFHA....

amalgam
22-11-2013, 04:27 PM
The rush for re-sets seems to have continued, with nothing on offer for ASBPB or WKSHA. There is currently a 5cps spread on ASBPA bid/offer and nearly 4cps spread on the IFTHA, with 3cps on the OCFHA....

Over the last few years they have had a dismal return compared with shares...but you are right they have been increasing, & when the sharemarket falls ..they are reasonably safe with a reasonable return

amalgam
26-11-2013, 05:01 PM
Further to my last post ..as far as I can calculate the capital gain on ASBPA pref shares over the last year has been 31percent......on WKSHA pref shares has been 22 percent. On top of this there has been a dividend. So at last these pref shares are getting back to true value.