OCBC has launched the Preference Shares placement again, due to last one overwhelming response. The dividend rate is fixed at 5.1%/annum for 1st 10 yrs and subsequently floating rate thereafter. Pls refer to attached file for details.
The Offering will be made by way of a Placement and an ATM Offer, which will open from 9.00 a.m. on 12 August and close at 12.00 noon on 26 August 20081. Of the total of 10 million Preference Shares available for subscription, 2.5 million Preference Shares (or S$250 million) will be offered under the ATM Offer, which is open to the general investing public.
Under the Atm offer, the minimum subscription is 100 Preference Shares (or S$10,000), and thereafter in multiples of 100 Preference Shares (or S$10,000). Retail investors can apply at any OCBC Bank ATM and ATMs of the other participating banks, namely DBS Bank (including POSB) and UOB Group. ATM applications will be subject to balloting if the total subscriptions exceed the amount available for subscription. The last public offer was about 11x oversubscribed.
The Preference shares is NOT risk free. You may want to take note of the following:
- Preference shares are traded like any normal shares
- They pay a fixed dividend
- It has an infinite life. OCBC is NOT obliged to redeem it but they have a call provision attached, so it may not remain outstanding forever.
- IMPORTANT: The issuer (OCBC) can FORGO paying the dividend if their earnings is insufficient. Failure to pay the dividends does NOT result in default of obligation. However, preferred shareholders rank in priority to the common shareholders when paying of dividends.
- Preferred sharesholders DO NOT have voting rights (except in financial distress). Thus, they CANNOT go to the AGM to “ta pau” the buffet.
- Preference shares are generally classified less risky than stocks, but more risky than bonds. This Preference Shares have been rated investment grade by rating agencies, with an Aa3 rating from Moody’s, A+ from Fitch and A- from Standard and Poor’s.
Generally speaking, our local banks are very conservative and well run (just look at the pathetic interest they offer to us!). Therefore, barring unforeseen circumstances, I don’t foresee any default of dividend in the foreseeable future. Of course, higher returns always come with higher risks.
For those clients sitting on a pile of cash in their banks, this is a good diversification for higher returns than fixed deposit.
However, with inflation expected at about 5~6%, this dividend yield probably just enough to shrink your savings further. There are other means of higher returns which I think is a good balance of returns/risk ratio. Will tell you more after I completed the report.
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