May still be worthwhile to buy Genting Preference Securities 5.125% now

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About 2 weeks ago, Genting Singapore PLC announced that it will redeem its S$1800 Mln 5.125% Perpetual Subordinated Capital Securities (PSCS) and its S$500 Mln 5.125% PSCS on their next call dates of 12 September and 18 October 2017 respectively.

Yesterday, I reviewed if it is still worthwhile to buy these two preference capital securities now given that there is a definite date that Genting will recall them.

In the process, I developed some insights so I thought of sharing the outcome of this review with you. The 2 preferential securities are:

S$500 Mln 5.125% PSCS (I will name it as PS-A) is the retail version that most of us are familiar with. It can be bought from SGX in minimum lot size of 1000 units.

S$1800 Mln 5.125% PSCS (I will name it as PS-B) is the equivalent version for institutional or deep pocket investors as it comes in minimum lot size of 250,000 units.

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S$500 Mln 5.125% PSCS (PS-A)

The last ask and bid price for PS-A on SGX was $1.017 and $1.015 respectively. Assuming that we can buy 10,000 units from the market now, we will incur the following cost (based on POEMS charges):

  • Cost of units = $10170
  • Brokerage cost (@0.28%) = $28.48
  • Clearing Fee (@0.0325%) = $3.31
  • SGX Access Fee (@0.0075%) = $0.76
  • GST (@7% of 2,3,4) = $2.28

Total = $10204.83

By 18 Oct 2017, I will get $10,000 + 182/365*5.125%*10000 = $10255.58

I will have made a profit of $50.17 (or a yield of 0.49% for holding 10,000 units PS-B for slightly less than 5 months). It is okay but not spectacular considering that it is around that same yield for a 6 months fixed deposit.

If I can afford to buy 100,000 units, the brokerage cost will be lowered to 0.18% and the yield will then improve to 1.21%. This is starting to make me feel more interested.

S$1800 Mln 5.125% PSCS (PS-B)

What if we have at least $250,000? Then we can start looking at PS-B.

PS-B is not available for retail investors like me but fundsupermart provides an avenue for us to purchase it if we have the money.

 It earns a fee in between (well, they must make money too) but it enables us to access bonds like this which we would otherwise have no access on our own. 

So, is it worthwhile to buy if we have the money?

The asking price of PS-B is 100.819 while bid price is 100.682.

I am sure the first thing you would have noticed is the difference in the prices between PS-A and PS-B. It is very much a result of whether it is available to retail investors or not. Since retail investors can buy PS-A, they are willing to bid up the price to an equivalent alternative, which is probably fixed deposit. PS-B can only be brought by institutional and deep pockets investors, they probably have many other investment choices than a typical retail investor, therefore, they will demand a higher yield by paying less.

Fundsupermart has a good article that compares these two PSCS – see link

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(Note: This is not an advertisement)

The fees from Fundsupermart are

  • Processing Fee: 0.35% of nominal value for each buy/sell order
  • Platform Fee: 0.05% per quarter, calculated on a daily average market value of bonds.

Assuming we buy 250,000 units of PS-B and hold to 12 September 2017, our yield can be calculated as follows:

  • Payment for PS-B units = $252047.50
  • Processing Fee = $875
  • One quarter of platform fee = $126

Total cost = $253048.50

On 12 September 2017, we will get $256388.70 into our bank.

The gain is $3349.20 or a yield of 1.32% for a period 4 months. This yield is much better than a fixed deposit or saving deposit held for the same period.

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How about leveraging?

How about we increase the risk further by taking on leverage at 1.88% pa for 50% of the amount required?

  • Own cash = $126024.5
  • Borrow amount = $126023
  • Interest Payment for 4 months = $789.75
  • Same Processing Fee = $875
  • Same One quarter of platform fee = $126

Then gain will be $2559.45 or a yield of 2.03% for a period of 4 months with a lower 50% leverage. This shows the power of leverage clearly. Sound like how a REIT makes money J

If the leverage can be increase to 75% for the same interest rate, then the yield will increase to 3.435% for the same period of 4 months.

No wonder, they always say the rich get richer.

So, does this interest you now? Your comments are most welcome.

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Contributed by: Warriortan

#warriortan, #investforyourself, #genting, #genting5.125%, #gentingpreferenceshares

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