Works Finance (NZ) Limited (WKS) Bonds

For discussion the WKS010 vs WKS020


Just reveiwing the Yields for:

WKS010: 15% & WKS020: 7.9%

Could anyone shed some light on why the WKS010's trade at such a large discount to the 020's.

Coupons are 9.8% to 9.65%.

WKS010 are subordinated and close to equity, can suspend interest etc and are perpetual. WKS020 are senior dated debt.

To answer my own Question, just found out the answer.

WKS010 are preference shares, guaranteed on an unsecured subordinated basis.

WKS020 are fixed dated bonds, guaranteed on an unsecured unsubordinated basis.


Edit: Thanks dubdee, was typing as you posted :)

Additionally,

Quote:

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Originally Posted by Direct Broking Website;

If the holder requests a higher rate than the rate set in the remarketing process, then the holder will be entitled to require Downer to repurchase or resell their holding. If Downer repurchases the securities, it will have the option to redeem in cash or equivalent value of shares in Downer

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In effect as the WKS010 mature 3 months before WKS020, you could request a higher rate, and have your holding bought back, or converted in DOW shares. Would like to see how the prosepctus words this, anyone have a copy or a link?

Additionally,
Originally Posted by Direct Broking Website;

If the holder requests a higher rate than the rate set in the remarketing process, then the holder will be entitled to require Downer to repurchase or resell their holding. If Downer repurchases the securities, it will have the option to redeem in cash or equivalent value of shares in Downer
Silverlight
In effect as the WKS010 mature 3 months before WKS020, you could request a higher rate, and have your holding bought back, or converted in DOW shares. Would like to see how the prosepctus words this, anyone have a copy or a link?


These have seemed like a good oppourtunity to me for a while. The terms of rollover are contained in the notes to the financial statements for Downer. Go to www.works.co.nz , shareholders info and click on latest annual report. Page 77 conatins the info. As I read it if you want to get out of them in 2012 you can by choosing to take shares at a 2.5% discount. The company has gone through a bit of a downer lately but is still well rated. Cant see it not meeting a payment by 2012.
All I need before buying some is confirmation that I am reading the situation correctly.

[QUOTE=midas;318838]Additionally,
Originally Posted by Direct Broking Website;

If the holder requests a higher rate than the rate set in the remarketing process, then the holder will be entitled to require Downer to repurchase or resell their holding. If Downer repurchases the securities, it will have the option to redeem in cash or equivalent value of shares in Downer
Silverlight
In effect as the WKS010 mature 3 months before WKS020, you could request a higher rate, and have your holding bought back, or converted in DOW shares. Would like to see how the prosepctus words this, anyone have a copy or a link?


You can download a copy from
www.companies.govt.nz
by searching the company and viewing a file "WORKS infrastructure finance (NZ) Limited Memorandum of amendments dated 15 March 2007". It is a large file 4.5 MB thus cannot be loaded on the forum.

The recent decrease in price may be linked to the collapsed South Canterbury Finance (preference shares) and the earthquales in Christchurch (need money now).

WKS010 in trading halt pending material announcement but not the 020's?

Are they likely to be suspending the next div then?

Actually, I guess it's just that they're prefs rather than debt securities as the DOW shares are in halt too over delays on the Waratah train project. All looks pretty messy:

http://www.smh.com.au/business/train...124-1a2z4.html

Comment from Adele Ferguson of the SMH.

http://www.smh.com.au/business/credi...125-1a4es.html

Apparently Works senior bonds (WKS020) have a condition that the interest rate increases by 1.25% if they fall below BBB- credit rating.

Maybe a additional payday for your jokers coming up?

Hmm I was looking at getting some of these bonds (WKS020) in February. Maybe not a good idea? I don't know a lot about bonds, but I thought they were safer than shares?

Quote:

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Originally Posted by RazorX

Hmm I was looking at getting some of these bonds (WKS020) in February. Maybe not a good idea? I don't know a lot about bonds, but I thought they were safer than shares?

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Safer in that they rank above equity in the event of liquidation. Not saying that this is the case here but they can be a bit of a trap if reliance is placed on their "bond" status without proper attention being given to the soundness of the company in the first place. As with the "secured" nature of the borrowings of so many of our failed finance companies!

I think you have to be a bit careful with the WKS010 bonds.

As I read it, at the step-up date (June 2012), Downer can choose to effectively convert them into perpetuals paying 3% above the 1-year swap rate. They can also go through a remarketing process invitation in which case the bond holders can ask for redemption or exchange into shares. However they are not obliged to do this, and I would imagine in the current circumstances, they won't.

If they convert to 3% above 1-year swap, they will currently pay a dividend of about 6.5 cents. This should increase eventually when interest rates rise. There will be no way of cashing them in except by selling them on the secondary market. Downer can chose to redeem them when it suits them, but they don't have to. At the current price of 87 cents, they seem a bit dearer than other perpetuals even when taking account of the 3% margin. (Eg, IFTHA has a 1.5% margin over the 1-yr swap rate but is selling at only 62 cents).

Announcement today 200m preference shares held by Works in Downer redeemed 21 April by Works Finance and then Works Finance made loan to Works of $200m. Does anyone know holders of WKS010 and 020 are impacted by these events?

I have somee Works WKS010 which I have had for about 3 years, when I bought them, the yeild was 9.2%.
I notice today they have reached nearly 27% yeild.
Could someone enlighten me why they have dropped so much in the last 3 months?
Do you recommend selling them at such a low price?

Hi Gary,

Firstly, that 27% yield is a yield to maturity. Given the maturity is defined by the calculation to be Jun 2012, the formula presumes that you will not only get interest payments, but an additional capital return of 13cps on the current 87cps price of these pref shares, along with the 9.8cps in gross dividends. The reality is that the 13cps on maturity is not particularly likely as Jun 2012 is actually a "step-up" date. The details of what happens then are rather complicated.

I just checked out the old prospectus, which you can get from the companies office web-site. Either Works Finance can agree a new interest rate with holders and repurchase or exchange for shares to holders who don't like the rates offered, or they can basically walk away and leave these as preference shares with an annual reset of 3% above one year swap rate or they can repurchase. Repurchasing is unlikely as Downers needs the funds. Currently, the most likely option would be the 3% margin above swap, as that would only require around 6%pa in gross interest payment based on current one year swap rates - you can follow them here.

Therefore, buyers at 87cps can assume that they will get 9.8cps this year and the equivalent of 6cps thereafter until sale. Take the 3.8cps higher return this year off the 87cps buy price and then divide the 6cps by the 82.2cps entry price and you will get an effective yield of 7.2%. By comparison, the Infratil Perpetuals which might be of a similar character, offer 1.5% above 1 year swap. Based on the current swap rates and price, they're sitting at about 7.1%, so as you can see, the WKS010 look as though they are being priced in the same region.

I can't answer as to whether you should sell them. You would still get 87% of the face value back and perhaps a bit less on what you paid, since it looks like at 9.2% you would have paid more than $1 per unit. It doesn't appear that they are pricing in the possibility of DOW being a financial basket-case or dividend payments being suspended (although this is possible). On the other hand, if inflation appears in the next year or two, the one year swap rate and ongoing re-set rate could rise which would improve the value, provided DOW remained a credible borrower.

Note also that although these are preference shares, the underlying preference shares in Downer appear to have been replaced with a straight out loan at an initial 10% interest. I'm not clear if that improves the security on these - would seem to be better for holders, but don't think they've been given an explanation.

Quote:

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Originally Posted by Lizard

Hi Gary,

I just checked out the old prospectus, which you can get from the companies office web-site. Either Works Finance can agree a new interest rate with holders and repurchase or exchange for shares to holders who don't like the rates offered, or they can basically walk away and leave these as preference shares with an annual reset of 3% above one year swap rate or they can repurchase.

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The Direct Broking website shows "The Step-up Rate applicable on 15 June 2012 will be the 1 year swap rate plus a margin 4.05% p.a." I think this number is correct because on the step-up date the new rate would be 1 yr swap + step-up addition (2%)+ initial margin. The intial margin was close to 2% as the current interest rate (9.80%) was 5yr SWAP + initial margin when the rate was set in 2007. Thus the new rate from June 2012 would be around 7%, not too bad if WKS010 is bought at 79 cents now. Further, WKS010 could be converted to shares in June 2012.

The Issuer has given notice that they will take the Step-Up option from 15 June 2012 and that the new Step-Up margin will be 4.05%, the aggregate of the Step-Up Percentage (2.00%) and the original Margin (2.05%). The initial Market Rate will be determined by the One Year Swap Rate on 15 June 2012.

Additionally, w/e from 14 May 2012, ROADS will be quoted on a "price traded" basis rather than the current "yield traded" basis and the NZX ticker code will change from WKS010 to WKSHA from this date.

New rate of 6.6% from step up date 15 June 2012. Any views out there on best way to play this. Accept rate or request a higher rate and take your chances. Doesn't look to be much downside on the rate part. Seems to me that if you would be comfortable having the possibility of being converted to Downer stock in the event remarketing process successful. If unsuccessful just get the step-up rate. Am I missing anything.?

Hi Kiwitrev,

As I understand it, this isn't a "re-marketing process", so you don't get the chance to make any choice. Downers have allowed them to "step-up", which means an additional 2% step-up margin has been added to the original 2.05% margin (set on book build) over the benchmark 1 year swap rate and they have become perpetual securities.

The rate is now re-set annually until such time as Downer is either taken over or decides to redeem them or to exchange the ROADS for ordinary shares in DOW (I think they can still do this on any dividend date). Obligations are affected by a takeover of Downer. Dividends are non-cumulative and Downer could potentially stop payment, but this will affect the ability of DOW to pay dividends on ordinary shares and would be a last resort.

I guess at around 75% of face value, the effective yield to buy on market now is 8.8% for one year, but perpetual and indexed. A good yield, but reflects risks.

Quote:

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Originally Posted by Lizard

Hi Kiwitrev,

As I understand it, this isn't a "re-marketing process", so you don't get the chance to make any choice. Downers have allowed them to "step-up", which means an additional 2% step-up margin has been added to the original 2.05% margin (set on book build) over the benchmark 1 year swap rate and they have become perpetual securities.

The rate is now re-set annually until such time as Downer is either taken over or decides to redeem them or to exchange the ROADS for ordinary shares in DOW (I think they can still do this on any dividend date). Obligations are affected by a takeover of Downer. Dividends are non-cumulative and Downer could potentially stop payment, but this will affect the ability of DOW to pay dividends on ordinary shares and would be a last resort.

I guess at around 75% of face value, the effective yield to buy on market now is 8.8% for one year, but perpetual and indexed. A good yield, but reflects risks.

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If the 1 year SWAP rate increases to 3.5% on June 15 next year then WKSHA would be paid an interest rate of 7.55%. For thos who bought the prpetual bonds at 75 cents the effectice reurn would be 10%. If interest rate in NZ increases further it would be expensive for Downer to pay a margin of 4.05%. Would not it be better for them to convert the bonds to shares?

The prospectus is one of the most difficult ones to read that I have ever struggled through, so I'm really not too certain about the right of exchange/redemption and how it operates beyond the step-up date. However, any exchange appears to be at a 2.5% discount to the 20 day VWAP (translated into NZD on the daily rate for each day).

At current price of DOW shares ($A 3.23), they would be issuing close on 15% more equity to replace. This is significant enough to potentially result in a conversion "death spiral" and possibly they would require approval from shareholders (not sure if the issue of ROADS themselves was ratified and whether that somehow covers a significant issue of equity beyond normal limits - as we saw in NZ when the ALF010's converted).

More practically, bondholders don't welcome being made into shareholders unless things are so dire that there is no other option for obtaining their money back. In this case, the securities are perpetual, so converting bond holders to equity holders would only occur if DOW wanted/needed to stop paying the div - which they can stop doing anyway. They would have to be fairly callous to foul their reputation in the debt market for the small advantage that issuing equity over ROADS might give them in some scenarios.

From Interest website.







Works Finance (NZ)
9.80% 15 Jun 2012/Perpetual






Indicative market yield (% pa)

N/A



Indicative market price (%)

74.00





Issuer

Works Finance (NZ)



Amount on issue (NZ$m)

200.0



Issuer type

Corporate



Description

Convertible Preference Share



Security ranking

Subordinated



Assumed maturity date

15 Jun 2012



Legal maturity date

Perpetual



Credit rating

N/R



Current coupon

9.80



Coupon type

Reset Quarterly



Next coupon reset date

15 Jun 2012



Coupon reset at

1 yr swap plus 4.05



Election/Conversion date

15 Jun 2012



First & future call dates

15 Jun 2012 & on dividend payment dates if stepped up



Margin reset date

15 Jun 2012



Margin reset

1 yr swap plus 4.05 if not resold



NZX Code

WKSHA



Holdings - minimum/increments ($)

3,000/1,000



Issue documentation

Click here


Notes

The preference shares are a perpetual instrument and as such have no fixed redemption date and the holder has no rights to require redemption.

Dividends may consist of a combination of cash payments and imputation credits. Dividends may not be paid under certain circumstances and are non cumulative.

On the First Step-up Date (margin reset date), holders will be given the option to either request the Step-up Rate, or a lower rate, or accept the rate determined after a remarketing process.

If the holder requests a higher rate than the rate set in the remarketing process, then the holder will be entitled to require Downer EDI Limited to repurchase or resell their holding. If Downer EDI Limited repurchases the preference shares, it will have the option to redeem in cash or equivalent value of shares in Downer. If the remarketing process is unsuccessful the dividend rate will be set at the Step-up Rate.

Yes, there is plenty of room for confusion about the step-up date, but now that the step-up date has passed and they did not elect to attempt a re-marketing process, the securities become perpetual with annual re-set. There are no more "step-up" dates, so the last two paragraphs referring to the re-marketing process can be deleted, as no longer apply.

Thanks to Lizard & others for helping to clarify the situation.
I found it all quite confusing. Although i now hold them at a modest capital gain (according to DB Portfolio list), i'm feeling rather insecure ...

I'm surprised more interest hasnt been shown in these. At 6.6% interest rate and selling at 7300 for 10,000 worth of bonds for this means a gross return of 9.04% which seems rather succulent to me. If interest rates drop next year as they may well do should still be at at a good yield when compared to other options. Might be time to add a few more.

Quote:

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Originally Posted by BIRMANBOY

I'm surprised more interest hasnt been shown in these. At 6.6% interest rate and selling at 7300 for 10,000 worth of bonds for this means a gross return of 9.04% which seems rather succulent to me. If interest rates drop next year as they may well do should still be at at a good yield when compared to other options. Might be time to add a few more.

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Or ... having regard to where & with whom they do business, whether their bills get paid, & all the scary press speculation about world money stuff recently,
maybe for this risk we should not offer more than 4500 for 10000 bonds, & hope they continue to be able to pay the 6.6% coupon rate ...

Big gap between your 4500 and 7350..Mr. Market is valuing these at 7210 to 7350 in last couple of weeks....what do you know that is making you nervous? They havent missed any dividends for me and they seem to be getting work ...the vans are new...big companies like these are unlikely to go to the wall because there just aren't that many players in the business they do. Risk is everywhere...what makes these stand out in your opinion?

Quote:

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Originally Posted by sharer

Or ... having regard to where & with whom they do business, whether their bills get paid, & all the scary press speculation about world money stuff recently,
maybe for this risk we should not offer more than 4500 for 10000 bonds, & hope they continue to be able to pay the 6.6% coupon rate ...

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Sadly, it may just be delayed post traumatic collapse stress syndrome.
After all, every one of the laudable & positive points made by Birmanboy were recently believed (by most) to apply perfectly to SouthCanterburyFinance !

At another level, i feel more generally that NZ market returns or investment yields do not adequately reflect the risks taken on by investors.

And i prefer to avoid altogether the very fraught question of whether we can trust what we are told, even if endorsed by reputable auditors.

So as to your first point re SCF...the only similarity is the word "finance". My guess is that Downer uses the finance to provide capital to fund ongoing works and contracts that it is working on...However the difference is that the results are completed projects, and products and real assets that have value. SCF and all the other Finance sharks produce nothing, manufacture nothing and exist to live off the spread in interest rates from greedy providers and desperate users like property developers unable to get funding from banks. This system works a treat and everybody wins when all components are clicking but as soon as the pressure builds on the lenders to place the money (they have borrowed at 8%) they can make poor lending decisions and suddenly instead of a 10% default rate they are faced with 20% default...thats when the faecal matter colides with the oscillating wind generator. Unsustainable yields are by their very nature ....unsustainable. As someone said ..greed is good...well to a certain extent yes and it is human nature to look for higher as opposed to lower yields. Finance Co's are/ were popular because they satisfied that greedy aspect of our nature but also calmed our fears by actually returning high yields...for a while.....yaaay we beat the system!! Hindsight ..such a valuable lesson to be learned and one hopes that those burnt are not irreparably damaged. So I dont personally think you can compare the two.

Re your second point NZ markets etc do not adequately reflect investors risks...I guess this depends on what expectatations you have for your investment funds. If you are like me..very close to retirement , you may well be quite conservative in what you expect..I am happy when my returns exceed term deposit rates. If you have "high" demands on your investor funds then the NZ market is noticeably short on possible 2,3, 4 or 10 baggers. The risk/reward ratio is such a personal one that everbody has their own view on that. MY view is that the NZ market is perfect for my needs and risk tolerance levels. There is certainly some risk if you look for capital gains returns on your investments but if you are a dividend and or interest devoteee its certainly good enough. (My overall gross yield this last year was a tad over 8% and even ended the financial year with a paper cap gain profit.) I dont think there is any way around the fact that if you want high returns you have to tolerate higher risks. As investors seek higher returns its inevitable that they will encounter more failures and loss of capital. Whether they can recover and find reconciliation in that ultimately defines what type of investor they are or will be. I think this is why most investment manuals urge towards a diversified portfolio which changes weighting according to your position and circumstances.

Re your third point...my old man used to tell me..."believe half of what you see and none of what you hear". Never though I'd agree with him but as they say" he got smarter as I got older

Quote:

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Originally Posted by sharer

Sadly, it may just be delayed post traumatic collapse stress syndrome.
After all, every one of the laudable & positive points made by Birmanboy were recently believed (by most) to apply perfectly to SouthCanterburyFinance !

At another level, i feel more generally that NZ market returns or investment yields do not adequately reflect the risks taken on by investors.

And i prefer to avoid altogether the very fraught question of whether we can trust what we are told, even if endorsed by reputable auditors.

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Well BirmanBoy i have to agree with you that a return in the vicinity of 8% is certainly quite respectable these days.
And when i read that advice: "believe half of what you see and none of what you hear", i couldn't help wondering if your old man and mine might
even have been cousins, the way things often work out in Kiwiland, because mine said exactly the same thing!

So I see these have now gone from 7200 to 7800 in the space of one month. Would seem that there is some interest in these and probably still some way to go as well. Current pricing provides 8.46% return.

Was thinking of putting the money from the NPX020's in here when it comes back next month.

I see these are now trading at 8000...where they seem to have been somewhat settled. This is producing a gross return of 8.2% which is quite a handy yield. One interesting thing is since they are not heavily traded every now and then when the stars and moons colide you can put in a cheeky offer as someone did recently at 7610. These reset every year now so yield will no doubt drop down from 6.6% but when you consider Kiwi Bank is offering 5.88% on its recent bond offer..there is still good value in these Works (IMHO)

B.Boy
You will be feeling pretty good, trading today almost to 90% on better than expected DOW 6mth result-up 7% on ASX but was up 14% in early trade. Interesting to note that vol. on DX at $180k the greatest for some time tells me punters banking on redemption into the future. Any similar views out there?

Vindicated not terminated...yes KT obviously there has been some continuing demand on these. I bought in at 7210 so so far has been very good.. I have an assortment of 10 bonds in the portfolio and this was the "riskiest" since I couldnt quite figure out why it was selling at such a discount but I felt underlying fundamentals of Downer were strong. Obviously they dropped the % down to 6.6% and also the reset is done annually so my guess is the next year will see a chunk taken away from the 6.6%. However the current yield is great and the worst case scenario is the reset rate will always be a couple of %points over the cash rate so while the interest rates remain low looks a steady earner. I cant see them redeeming them at full face value since they have been selling at a discount forever...they might do an Infratil and be buying them back on the market..hard to know.

Quote:

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Originally Posted by kiwitrev

B.Boy
You will be feeling pretty good, trading today almost to 90% on better than expected DOW 6mth result-up 7% on ASX but was up 14% in early trade. Interesting to note that vol. on DX at $180k the greatest for some time tells me punters banking on redemption into the future. Any similar views out there?

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Hi guys/gals
Just referring to the half year report which I ignored when anncd but just received in the mail. Could someone more knowledgable than I explain the situation regarding R/E of almost $3m. These have no doubt built up resulting from lower divvy paid since reset. As this security is effectively a preferential share in Downer NZ who would ultimately be the beneficiary of any R/E

yes kiwitrev Downer as the owner of the ordinary shares is the residual owner of the RE. its just that over the accounting period income on the loans to Downer exceeded the fixed dividends payable on the roads.

Heavy trading today, buyers have gradually chased this bond to now 95.5. Barring any unforseen circumstance
and with interest rates remaining low for the forseeable near term no reason why these bonds sholud not get back
to parity (and maybe beyond - he hopes).

As the recent reset date approached i had another go at trying to understand WKSHA. After close study of the small print i realized i was too dumb to hold this investment. I just couldn't understand it really. It was near 78-ish on entry & high 90s on exit, so there was a worthwhile expansion of the capital sum as i set off in search of a more easily comprehended adventure elsewhere.

Know what you mean...... information on some of these bonds..especially the perpetuals can be difficult to find and also difficult to decipher. I can remember going backwards and forwards all over the place trying to sort it all out. Also the website link on DB didnt work..they certainly didnt make it user friendly. Thats a lesson for the powers that be..if you want a high strike rate you have to be access friendly and clear of jargon and legalspeak. Infratil is good about that..there website has an excellent section on debt securities/bonds etc.

Quote:

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Originally Posted by sharer

As the recent reset date approached i had another go at trying to understand WKSHA. After close study of the small print i realized i was too dumb to hold this investment. I just couldn't understand it really. It was near 78-ish on entry & high 90s on exit, so there was a worthwhile expansion of the capital sum as i set off in search of a more easily comprehended adventure elsewhere.

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Bear in mind that these securities were issued at a different time, under different conditions to those of today. They were tailored for the times, attractive to prospective investors - on the surface, at least - and the demand was such that most sold readily. But you're right, subsequent events have made investors much more wary and such convoluted securities wouldn't fly these days.

Next reset date 15 June. By my calculation new rate (at today's 1 yr swap) would be 6.78%. The rate is set at 1yr swap on 15th.

For those that are interested the new step up rate is 6.82%. This should ensure support as yields on T/D still struggling. I notice ASB 5 yr rate is down to 4.7%.

Thanks for that KT. I don't have too many, but am reasonably comfortable with them.

Grimy
You may feel even more comfortable. Fitch has upgraded Downer & Co. to BBB with a stable outlook. Not too bad for a company written off by many because of the Waratah train debacle(now on track to complete)

Anyone have any thoughts on where the interest rate on these might head to on the next reset,I sold mine out a few months ago but looking to get back into some fixed interest/resets again, with interest rates on the rise next year I guess these could go over 7%? I think the reset is 4.05% over 1 year swap rate,cheers

Well the current 1yr swap is 3.4% and 2yr 3.84%. If those proved to be accurate (and possibly higher) so looking at 7.89% on the current 2 yr. Medium to long term these should be a good buy right now still at a discount. Have been holding for some time and thru' the not so good time re Waratah issue but now looking a solid hold.

Based on current rates according to Interest.co.nz website yields now looking to be from now, 1yr-7.56% 2yr-8.00 3yr 8.27 4yr 8.47 5yr 8.63 7yr 8.91 10 9.16.

Watching swap rates on a daily basis is like getting a pay rise every day. Five days since last post and yields now 1yr- 7.63, 2yr 8.11, 3yr 8.35, 4 yr 8.5, 7yr 8.65. If trend is your friend every chance yields will continue to rise.

Quote:

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Originally Posted by kiwitrev

Watching swap rates on a daily basis is like getting a pay rise every day. Five days since last post and yields now 1yr- 7.63, 2yr 8.11, 3yr 8.35, 4 yr 8.5, 7yr 8.65. If trend is your friend every chance yields will continue to rise.

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Thanks for info Kiwitrev,bought some back again at 99.5 a couple of weeks ago and may get a few more yet,looks a good play with a med- long view and not too shabby even at the next reset in June

Sure does. Not too many bond type issues that virtually guarantee a rising yield (in current and future conditons) when most bonds will be 'losing value' re rising interest rates.

It seems 'they' are on to it. Increased volume today at time of writing $232k (10 trades) which is much greater than the norm. Has recently traded as high as 102.50 and today 'tween 100.2 and 101

Quote:

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Originally Posted by kiwitrev

It seems 'they' are on to it. Increased volume today at time of writing $232k (10 trades) which is much greater than the norm. Has recently traded as high as 102.50 and today 'tween 100.2 and 101

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Should have kept that cat in the bag:cool:

Kiwitrev notice when equities have a bad day the turnover volume of this stock increases significantly,kinda like a hedge fund,bought another small lot at 99.50:cool:

Couta
I'm not clever enough to notice those type of movements. Don't think under par buying can last much longer given this bond's rising future yield. However have had to liquidate part of my holding to finance SPP in WHS (max. times two - Mr & Mrs) as am comfortable in medium/longer term on this stock. Am happy to pick up more WKSHA as funds allow.

Reset coming up in a few weeks time. If we stay on current 1 yr swap of 3.67%, we will see it set around 7.75% for the next year.

Trading above par now though ($1.025).

Quote:

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Originally Posted by Lizard

Reset coming up in a few weeks time. If we stay on current 1 yr swap of 3.67%, we will see it set around 7.75% for the next year.

Trading above par now though ($1.025).

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Good medium to long term hold with a company that keeps winning significant contracts and stacking up its forward workload.

The reason they are as much above par is because on next div. due date (15 June) you will get the qtr div if owning the bond by 6 June thereby getting most of the premium back.

Rate reset to 7.95% for the year with dividends fully imputed, looking forward may be near 9% next year.

Quote:

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Originally Posted by couta1

Rate reset to 7.95% for the year with dividends fully imputed, looking forward may be near 9% next year.

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Finally. It has been a long road waiting for interest rates to return to an upward cycle.

Quote:

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Originally Posted by couta1

Rate reset to 7.95% for the year with dividends fully imputed, looking forward may be near 9% next year.

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I guess the biggest risk around this is that they will be re-purchased at $1 each or exchanged for shares in Downer (2.5% discount) on some future dividend payment date? At least that is the way I read the prospectus (pages 37 & 50).

As interest rates rise, they would surely have to think about doing so??

Yes, that's how I read it, Lizard. As with all these redeemable/convertible instruments the terms are heavily in favour of the issuer.

In retrospect, I guess we were always going to be on a hiding to very little by investing in them.

:(

To buy them back they have to come up with cash which is probably difficult for most companies since they tend to have their capital working not sitting. Also as rates rise not only do they pay out more but also it would cost them more to borrow so not so clear cut. If they were on to it they would have been buying them back on market when they were selling at a discount...however I don't recall any notification of this happening. However since I was fortunate to get in at 7210 its an excellent return on my capital. I haven't read the prospectus (lazy boy) but conversion to Downer shares would be possibility if I had to hazard a guess. I can see it running a while yet though. All depends on other finance options available globally.

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Originally Posted by Lizard

I guess the biggest risk around this is that they will be re-purchased at $1 each or exchanged for shares in Downer (2.5% discount) on some future dividend payment date? At least that is the way I read the prospectus (pages 37 & 50).

As interest rates rise, they would surely have to think about doing so??

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New dividend rate from 30 June is 7.21% fully imputed. Pretty competitive in current low interest environment. Bought more during the year so happy with that decision.

Hah this has to be one of the least posted investments KT..I see I made a post one year ago so here is my annual post for the year.. Wish I had bought more... What can you say...good return and capital growth. Might drop a bit with interest rates dropping but still double digits for me. See you next year.:)

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Originally Posted by kiwitrev

New dividend rate from 30 June is 7.21% fully imputed. Pretty competitive in current low interest environment. Bought more during the year so happy with that decision.

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The formula for reset annually is: One year swap rate plus step up margin 4.05% so it would appear wherever interest rates are at any time (up or down) this bond (actually a preference share) will always be at a competitve rate to the market norm. Has been trading on the secondary market for some time at around 102 per 100, a small premium to pay.

Whoops, time for the annual post on Works...KT I think we are the only holders of this...which means you must have a s***load of these:p. Still a double digit return annually so still holding. I almost bought some more when it took a bit of a dip but got distracted. Under the radar and still worth looking at with step up margin.

BB, sold these a little while back, to escape the punitive tax deduction. Have a strategy yet to play out-intend to buy IFTHA after NZ$ rate cut. Currently down to 62 per 100 and will probably go lower. Estimate after NZ$ rate cut and IFTHA reset 6.2% real return better net than WKSHA. IFTHA margin 1.5% over 1 yr swap. Only committing new funds to this strategy as best home low interest rates.

You mean the posting frequency will go down to one per year (if I remember)? Good luck with your new strategy.. I looked at these IFTHA some time ago but already had 3 other IFT so decided no. Not much of a margin???? Swap rates could go lower yet. If you are putting money on a mortgage that's good use of course.

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Originally Posted by kiwitrev

BB, sold these a little while back, to escape the punitive tax deduction. Have a strategy yet to play out-intend to buy IFTHA after NZ$ rate cut. Currently down to 62 per 100 and will probably go lower. Estimate after NZ$ rate cut and IFTHA reset 6.2% real return better net than WKSHA. IFTHA margin 1.5% over 1 yr swap. Only committing new funds to this strategy as best home low interest rates.

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Originally Posted by BIRMANBOY

You mean the posting frequency will go down to one per year (if I remember)? Good luck with your new strategy.. I looked at these IFTHA some time ago but already had 3 other IFT so decided no. Not much of a margin???? Swap rates could go lower yet. If you are putting money on a mortgage that's good use of course.

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IFTHA are one of the inflation hedge components of my bond portfolio. I haven't bought any over 60c. The yield has been remarkable over the past few years.

I wouldn't like to have bought them at issue, or in the past two years though. . .

Yes another one of those situations where its WHEN you buy that really matters. I try and point that out to my partner ..."remember how handsome I was when I was younger...just keep that as your focus". Unfortunately she doesn't appreciate that holistic outlook, and seems to prefer the "here and now". Such a waste.;) BB quote in Confucious style. Whether an investment is a dog or a darling is quite often only revealed by the passage of time and unfortunately there is a lot more of time in front of us than behind us. (although in my case that ratio is unfortunately not true). I see IFTHA is now trading at 6005 and has taken a tumble from 7420 in Feb. I wonder if it will go down to 54 odd. I guess KT is waiting for some bottom trawling. Will you buy in again?

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Originally Posted by GTM 3442

IFTHA are one of the inflation hedge components of my bond portfolio. I haven't bought any over 60c. The yield has been remarkable over the past few years.

I wouldn't like to have bought them at issue, or in the past two years though. . .

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I'll be quite happy to pick up some more if they go much lower. I haven't bought for a while due to price, but been happy to sit on what I have as GTM3442 says, the return has been very good if you bought at the right time. Of course selling when they were in the 70's would have been clever too.
I've been buying ASBPB lately........not near as cheaply as in the past, but I'm hoping for a repurchase by ASB in the next few years to give a very healthy overall return.

I will buy in under 60c, but not many, as I already have almost as many as the plan calls for.

And as I can't see inflation being an issue for the next five years or so (famous last words?) I'm quite happy to wait for the price to fall (under 60c is good, low 50s better).

Selling at 75c would have been nice, but what would I have done with the money? What else was available in the way of inflation-hedged fixed interest to match IFTHA at a sub-60c price?

So selling would have been a 50% profit in the hand at the expense of future profit, and would have left a hole in the asset allocation model.

[QUOTESo selling would have been a 50% profit in the hand at the expense of future profit, and would have left a hole in the asset allocation model. ][/QUOTE]

I know that many experts place a lot of emphasis on maintaining asset allocations fairly rigidly but I take a much more relaxed attitude to the subject. If something should be sold - or bought - I tend to do so - and hope to sort things out at a later date!

:mellow:

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Originally Posted by macduffy

[QUOTESo selling would have been a 50% profit in the hand at the expense of future profit, and would have left a hole in the asset allocation model. ]

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I know that many experts place a lot of emphasis on maintaining asset allocations fairly rigidly but I take a much more relaxed attitude to the subject. If something should be sold - or bought - I tend to do so - and hope to sort things out at a later date!

:mellow:[/QUOTE]

It was more the question of what would replace those IFTHAs had I sold them.

Asset allocation is a fine tool, to be sure, and I do try to follow my model but, like you, it's a flexible model.

There are, after all, times when tactics do trump strategy.

Anyone think WKSHA is worth another look in current low interest climate.

I don't know, but I've still got my small holding.

Still got some too.....Depends on infrastructure spending i suppose....

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Originally Posted by mcdongle

Still got some too.....Depends on infrastructure spending i suppose....

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More of an interest-rate play I would think. If you see rates rising in the near/medium future they would be in line for an interest-rate upward re-set. (And vice-versa!)

was thinking along the lines of...If there is no roadbuilding ..etc they have less work

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Originally Posted by mcdongle

was thinking along the lines of...If there is no roadbuilding ..etc they have less work

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They are preference shares, paying a dividend tied to certain interest rates. Preference over Downer ordinaries, that is. If less work for Downer results in lower dividends, it's the ords that cop the effect first. If the worst comes to the worst, the pref shares have "preference" over the ords in any distribution to shareholders.

Present rate is 4.32% and price around 1.045.
Was looking at selling as I only have a few, and the premium over the issue price takes care of a year's income.
But where else are you getting 4%+ on what is a proxy bond?
I see Auckland council has released a 30 year bond at 2.95% today, but there is brokerage on that. Safe I know, but hard to get interested.

My sentiments too, Grimy. The quarterly div at 4.32% doesn't amount to much on my modest holding but as you say, in today's market, not to be sneezed at!
:mellow:

Extreme demand for the Auckland Council bonds. Closed already. Sorry to be off topic.