Note key risks in perpetual securities, MAS cautions

[sgd]

as bondholders you don't have any voting rights so what can you do to prevent a shareholder rebellion to vote against paying bondholders?

MAS doing is basically just saying: "see here, I told you already, if you still do it later any problems not my pasar"

But personally I think for genting perpetuals should be quite ok. If you consider they been operating in msia on a deserted remote hill in the middle of nowhere in good and bad time for many decades, if it wanted to gone bust it would have done so long time ago.

not vested but if fluctuates wildly I may buy some later

it is not up to shareholders to decide whether to pay bondholders or not. it is that you MUST pay bondholders unless bankrupted already.

It is very different from preference shareholders.

I stand corrected, you are right

[Temperament]

No matter how strong a borrower's credit standing is, why on earth would or should a lender or investor agree to lend or part with his money on a debt instrument without a final maturity date !!! - and this is the primary issue, and a fundamental one ! - and, as a secondary issue, which also allows the borrower the flexibility to defer his regular interest payments obligation further down the road!! IMHO, the takers have to be rather stupid lenders or investors, even though they may think that they have gotten a higher yield on their investment funds.

Buffett's purchase of Goldman's perpetual preference shares during the Lehman crisis fits your description - No maturity date (in fact, he was hoping that it goes on forever), & since it's pref shares, Goldman can choose not to pay the coupon. Was it a mistake then?

At the end of the day, it boils down to whether you've been sufficiently compensated for the terms of the security (in Buffett's case, a 10% coupon with a added call option).

It would be a mistake to deem all perpetuals as bad.

Exactly, at the end of the day, none of us can do what WB did.(in Buffett's case, a 10% coupon with a added call option). He lends, buys and sells "distress" businesses in his terms most of the times. Simply he has the clout and money and timing and his reputation.

[dydx]

Do correct me if I got it wrong - Goldman's perpetual preference shares would rank - in the event of liquidation - behind its senior debts like straight bonds or notes; and such preference shares would rank ahead of Goldman's common shares in the event of liquidation. So the basic characteristics of such preference shares are closer to that of common equity, especially since the preference shares, at the discretion of Buffett's Berkshire Hathaway, could be converted into new Goldman common shares together with the equity warrants issued in conjunction with them, if Goldman doesn't redeem them by a certain date, but subject to certain defined conditions.

But in the local cases, the perpetuals are prima facie falling into the category of senior debts. Do correct me if I got it wrong.

[CityFarmer]

No matter how strong a borrower's credit standing is, why on earth would or should a lender or investor agree to lend or part with his money on a debt instrument without a final maturity date !!! - and this is the primary issue, and a fundamental one ! - and, as a secondary issue, which also allows the borrower the flexibility to defer his regular interest payments obligation further down the road!! IMHO, the takers have to be rather stupid lenders or investors, even though they may think that they have gotten a higher yield on their investment funds.

Buffett's purchase of Goldman's perpetual preference shares during the Lehman crisis fits your description - No maturity date (in fact, he was hoping that it goes on forever), & since it's pref shares, Goldman can choose not to pay the coupon. Was it a mistake then?

At the end of the day, it boils down to whether you've been sufficiently compensated for the terms of the security (in Buffett's case, a 10% coupon with a added call option).

It would be a mistake to deem all perpetuals as bad.

I concur with your arguments.

IMO, Perpetuals have its own merit and risk. It provide options to investors. It is stupid to buy perpetuals with a similar return of a bond, but not with a well compensated higher return. (with the risk taken)

[dydx]

If cost of equity for an issuer (e.g. GIL) - as demanded by the stock market including by smart/informed sophisticated investors - is say about or more like at least 12%p.a., then by rational thinking, shouldn't the cost or yield of a perpetual senior debt be close to 10%p.a.? Are investors getting that?

[Temperament]

Don't forget just recently, NOL "failed" in its attempt to issue even "CPS", if i am not mistaken. In this sense i think Singapore investors still got some "hope".

[freedom]

as bondholders you don't have any voting rights so what can you do to prevent a shareholder rebellion to vote against paying bondholders?

MAS doing is basically just saying: "see here, I told you already, if you still do it later any problems not my pasar"

But personally I think for genting perpetuals should be quite ok. If you consider they been operating in msia on a deserted remote hill in the middle of nowhere in good and bad time for many decades, if it wanted to gone bust it would have done so long time ago.

not vested but if fluctuates wildly I may buy some later

it is not up to shareholders to decide whether to pay bondholders or not. it is that you MUST pay bondholders unless bankrupted already.

It is very different from preference shareholders.

I stand corrected, you are right

I looked into wiki again just now. actually, I am wrong. Bond itself as a security class does not imply the absolute right to receive coupon and/or principal. It is more in the terms and conditions of the specific bond, describing various payment options under certain conditions.

In the case of perpetual bond, the issuer has the right not to redeem it.

The right to receive coupon may also be expressed in the T&Cs, e.g. coupon could be deferred if the company does not pay common dividend whether coupon is cumulative or not.

So there does exist a situation that shareholders could rebellion against the bondholders in the case of perpetual bond with T&Cs which allow deferral of coupon payment (shareholders vote against dividend at every AGM).

So perpetual bondholders had better read their T&Cs to know their rights.

[CityFarmer]

If cost of equity for an issuer (e.g. GIL) - as demanded by the stock market including by smart/informed sophisticated investors - is say about or more like at least 12%p.a., then by rational thinking, shouldn't the cost or yield of a perpetual senior debt be close to 10%p.a.? Are investors getting that?

Please allow me to put up my opinion.

The yield should also depend on the issuer (e.g. rating). Not all are the same.

SingPost yield for bond is 3-3.5%, perpertual yield is 4.25%. Is this fair to investor? My opinion is it is a fair offer with its risk involved. I have to admit that I will not go for it because i have better one elsewhere.

[mysterion]

If cost of equity for an issuer (e.g. GIL) - as demanded by the stock market including by smart/informed sophisticated investors - is say about or more like at least 12%p.a., then by rational thinking, shouldn't the cost or yield of a perpetual senior debt be close to 10%p.a.? Are investors getting that?

Perhaps the intelligent investor should look into the area of "perpetual securities" as special situations when fixed-income instruments go out of favor. Some examples would be when interest rates rise substantially or when the issuer goes into temporary financial difficulties (and hence, deferring coupon payouts). As a result, the price of such perpetual securities would drop significantly in the secondary market, causing its interest yield to increase substantially (plus with a much greater potential for capital appreciation).

Wouldn't this create a margin of safety and make such investments much more attractive? Of course, this depends on the specific situation and would require the investor to put in effort to research the business fundamentals.

[Temperament]

If cost of equity for an issuer (e.g. GIL) - as demanded by the stock market including by smart/informed sophisticated investors - is say about or more like at least 12%p.a., then by rational thinking, shouldn't the cost or yield of a perpetual senior debt be close to 10%p.a.? Are investors getting that?

Perhaps the intelligent investor should look into the area of "perpetual securities" as special situations when fixed-income instruments go out of favor. Some examples would be when interest rates rise substantially or when the issuer goes into temporary financial difficulties (and hence, deferring coupon payouts). As a result, the price of such perpetual securities would drop significantly in the secondary market, causing its interest yield to increase substantially (plus with a much greater potential for capital appreciation).

Wouldn't this create a margin of safety and make such investments much more attractive? Of course, this depends on the specific situation and would require the investor to put in effort to research the business fundamentals.

Since you propose, or think so, now can you tell me is there really such a possibility such counter existed in SGX? And if you don't mind, tell us why you think so. We all may buy your idea.