IFTHA Infratil Perpetuals

[D B Cooper]

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/7312...ns-the-company

[D B Cooper]

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]

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

[BIRMANBOY]

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]

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]

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.

[Stranger_Danger]

IFT can cash mine up at $1.00 any time they want.

[Grimy]

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.

[kiwitrev]

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]

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.