sharetrader
Page 3 of 9 FirstFirst 1234567 ... LastLast
Results 21 to 30 of 85
  1. #21
    Member
    Join Date
    Aug 2010
    Posts
    380

    Default

    Quote Originally Posted by Lizard View Post
    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.
    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?

  2. #22
    Share Collector
    Join Date
    Mar 2005
    Location
    Porirua
    Posts
    3,509

    Default

    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.

  3. #23
    Member
    Join Date
    Mar 2010
    Posts
    473

    Default

    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.

  4. #24
    Share Collector
    Join Date
    Mar 2005
    Location
    Porirua
    Posts
    3,509

    Default

    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.

  5. #25
    Member sharer's Avatar
    Join Date
    May 2007
    Location
    Wellington
    Posts
    321

    Default

    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 ...

  6. #26
    Advanced Member BIRMANBOY's Avatar
    Join Date
    May 2011
    Location
    Wellington
    Posts
    1,556

    Default

    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.

  7. #27
    Member sharer's Avatar
    Join Date
    May 2007
    Location
    Wellington
    Posts
    321

    Default

    Quote Originally Posted by BIRMANBOY View Post
    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.
    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 ...

  8. #28
    Advanced Member BIRMANBOY's Avatar
    Join Date
    May 2011
    Location
    Wellington
    Posts
    1,556

    Default

    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 Originally Posted by sharer View Post
    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 ...

  9. #29
    Member sharer's Avatar
    Join Date
    May 2007
    Location
    Wellington
    Posts
    321

    Default

    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.

  10. #30
    Advanced Member BIRMANBOY's Avatar
    Join Date
    May 2011
    Location
    Wellington
    Posts
    1,556

    Default

    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 Originally Posted by sharer View Post
    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.

Bookmarks

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •