10 September 2010

Non-Convertible Preference Shares (NCPS) I

Traded on the SGX, NCPS are traded like shares (which means the bid-ask price fluctuates), but gives out dividend/coupon payments like bonds.  There aren't that many such NCPS, and they're most likely from the 3 big banks in Singapore. So long as the issuers don't call back their NCPS, they will continue to pay out the dividends at the stated rate.  However, some of these have 'maturity' dates where the coupon rate reverts to a floating rate thereafter.  Prior to the maturity date, the bank cannot call back the NCPS.

The risk of failure stems from the issuing company going down under (you lose your pants!), or when it fails to pay out any dividends for their standard shares resulting in no dividend payout for their NCPS as well. However, the likelihood of these negative events appear slim given the strong historical performance of these Singapore banks.  But then again, we've seen also big banks in the US going down under in recent history!

If one is not worried about the fluctuations of the "capital", and is happy with the dividend/coupon payout, NCPS may not be a bad option for building a "cashflow" stream.  So long as the issuer doesn't recall the NCPS, you will get the annual payout (usually half-yearly or quarterly) perpetually.

Below are the respective NCPS.  Read as such:
[Date of maturity] @ [Rate] ([Dividend/Coupon payout date])

DBS 6.0%
- 15 May 2011 @ 6% (15 May, 15 Nov)
- Thereafter @ 3-mth SOR + 2.28% (15 Feb, 15 May, 15 Aug, 15 Nov)

UOB 5.05%
- 15 Sep 2013 @ 5.05% (15 Mar, 15 Sep)
- 15 Sep 2018 @ as above [2nd maturity date]

OCC 5.1%
- 20 Sep 2018 @ 5.1% (20 Mar, 20 Sep)
- Thereafter @ 3-mth SOR + 2.5% (20 Mar, 20 Jun, 20 Sep, 20 Dec)

OCC 3.93%
- 20 Mar 2015 @ 3.93% (20 Mar, 20 Sep)
- Thereafter @ 3-mth SOR + 1.85% (20 Mar, 20 Jun, 20 Sep, 20 Dec)

OCBC 5.1%
- 29 Mar 2013 @ 5.1% (20 Jun, 20 Dec)

OCBC 4.5%
- 28 Jan 2013 @ 4.5% (20 Jun, 20 Dec)

OCBC 4.2%
- 14 Jan 2013 @ 4.2% (20 Jun, 20 Dec)

SOR refers to the Swap Offer Rate.

If any of the above are not correct, I welcome your updates (via "Comments").

See DBS to launch preference shares for retail investors


Lizardo said...

Given the low interest rate environment of late, it appears likely the DBS NCPS will likely be called. DBS is probably going to issue a new tranch at a lower coupon rate later this year.

Anonymous said...

If normal share don't get paid for dividend, we may still get paid for NCPS but not the reverse. That is what I understood for NCPS as it has priority over normal shares when come to dividend payment