simoan wrote:I’m sorry to say but the argument is totally delusional IMHO. I only just stopped myself from laughing whilst reading it.
Agree.
Hawkeye_74 doesn't understand that the agreement to receive income only survives
until the capital is repaid and no longer.
He doesn't understand this because he thinks perpetual means the issuer has no right to purchase the shares. He couldn't be more mistaken. Perpetual means that
the investor has no right to demand or receive repayment. He can carefully read all the terms and that is what he'll find.
He also thinks irredeemable means they cannot be purchased by the issuer. This is wrong. Irredeemable means that they were issued without any promise to repay the investor on a fixed redemption date.
The fact is that as perpetual instruments the preference shareholders may only get their money back when the company/shareholders as a class so decide and furthermore, dividends are only payable as long the issuer has opted not to repay them.
The text warrants a debunk:
-"the issuer has no rights to repurchase the security other than by negotiation". Wrong. The issuer has various options for repurchasing the shares -- one is negotiated purchase, another is capital reduction, a third is by winding up the company. It is the shareholder that has no right to sell back his shares except by negotiation.
-"the prospectus makes no mention of a regulatory par call". Irrelevant. What has a regulatory call got to do with this tender offer? It will either proceed as a purchase of shares or a reduction of capital by repayment and cancellation. The purchase/repayment is offered at a significant premium to the required par value.
-"the issuer has no right to redeem other than by an offer". Wrong. The issuer has no right to redeem at all. Redemption is only possible if the shares were issued as redeemable, i.e. with a redemption date. These prefs have no redemption language so investors cannot get their money back via redemption.
-"Preference shareholders should be offered a substantial premium to forsake the rights[...]". Their rights are to nominal value in a capital reduction. They are being offered a 22% premium to that amount.
-""flat to gilts"[...] As this is a perpetual security this would be the longest gilt in issuance." Not to any well-informed bond investor it wouldn't. The appropriate gilt is one with a similar modified duration of 16 years. The yield of those gilts is about 4.5%. No preference shareholder should EVER be satisfied with a yield on their shares equal to gilts (except in an extreme sovereign debt crisis ala Greece 2010). It follows that it's unreasonable to demand "flat to gilts". IMO a spread of 150bp is pretty good, definitely not stingy.
-"There will only be gilts as a perpetual-esque(!!) cash flow." Rubbish!
No gilts are perpetual AFAIAA. They all promise repayment to the investor. Further if someone is willing to consider a perpetual investment then practically every ordinary share is perpetual. What's wrong with buying those?
-"If the tender succeeds for RSA other preference share issuers will use the same approach". Irrelevant. They would do so even if RSA didn't exist. What they do is not in any way dependent on the outcome here. And many will have to use a different approach because they don't have the ability to execute a reduction of capital.
-"There is literally no downside to voting against the offer...". OMFG. Totally does not understand. If you vote against and the cancellation motion fails YOU DO NOT GET TO SELL YOUR SHARES. This means the company still has your capital, you will have to sell in the market or not at all -- or quite possibly a reduction of capital at par might follow so you miss out entirely on the 22% premium being offered. While holding the shares you face all the usual risks of a shareholder AND those associated with a fixed dividend (inflation etc).
-"The issuer will undoubtedly seek to improve the offer..." WRONG. There is a huge amount of doubt as explained above. IMO any future repurchase will be on worse terms.
The last paragraph is not an optimistic argument, it's a cuckoo argument.
GS
EDIT: Someone please remind Paul Hawkins that preference shares are not bonds. Thank you.