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  1. #11
    Guru Xerof's Avatar
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    Mar 2005
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    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
    Last edited by Xerof; 11-01-2012 at 02:11 PM.

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