Citydev NCCPS

[Vseeker]

Citydev NCCPS
The MAJOR disadvantage of this NCCPS is it can be quite illiquid
and its perpetual with Conversion ONLY at the SOLE Option of Company
so Conversion: maybe within 1 or 2 years time, OR maybe only in 5-10 years time, OR even NOT within your Lifetime
NB: NCCPS was first issued on 09-Jun2004 => so it had been around for over 8 years now (as at Sep2012)


Briefly the T+C
============
its a Non-Cumculative Convertible Pref Share
a) paid max of 3.9% Pref Div per annum (i.e 3.9c per CitydevNCCPS share) - half in Jun & half in Dec each year

b) Timeline is Perpetual - so no maturity

c) Conversion is ONLY at SOLE Option of Company
...I believe Controlling shareholders also got a big chunk (my guesstimate ~ 32%) - so there's alignment of interests

d) Conversion Term :
each NCCPS convert to 0.136 Citydev ord shr + an Additional Pref Div of $0.64 net cash

===> so upon Company's trigger Conversion:-
one NCCPS converts into ==> 0.136 Citydev ord share + $0.64 net cash
1000 NCCPS converts into ==> 136 Citydev ord share + $640 cash

So upon Company Trigger Conversion, the returns could be v. attractive... esp if Citydev Ordshr price is trading at much higher than $5

Examples
=========
1) using 28sep2012 closing prices: CityDev Ordshr=$11.74 / Citydev NCCPS=$1.11
Effective Yields per NCCPS is 3.9c/$1.11 = 3.51% p.a. (higher than current CPF OA rate of 2.5% )

Potential values per NCCPS upon a Company trigger conversion = 0.136*$11.74 + $0.64 = $2.237 !!!
that's double the current NCCPS price of $1.11 each !!


2) Now if we assume Citydev ORdshr price CRASHED to only $5
Potential conversion values for each NCCPS = (0.136*$5.00 + $0.64) ==> still worth $1.32 per NCCPS !

NB: total NCCPS in issue = 331m,
so new Citydev ordshrs upon NCCPS conversion is 44.99m - less than 5% of current Citydev Iss shrs
==> so dilutive impact not a big issue


attractive for those using CPF OA funds - if YOU have NO NEED to utilise your CPF funds at short notice (eg still servicing home mortgages)
i) coz the annual 3.9% Pref Div rate of NCCPS,
at CitydevNCCPS curr price of $1.11 , eff. yields=3.9c/$1.11=3.51% p.a
=> its higher than CPF OA rate at 2.5% and still got potential for capital gains upon NCCPS conversion

Some Stats : Annual servicing costs to Company - for annual Pref dividend payouts
==============
Issued NCCPs = 330.874m units: At 3.9% p.a. Annual Pref dividend payout amounts to a mere $12.904m
mere peanuts to Citydev with its past 5 years' annual Revenues at around $3 Billion & PATmi around $600m~$800m p.a.

in the unlikely event that the 3.9% pref div is not payout in full for any periods
Company(Citydev) will be forbidden to declare any ordinary dividends and other restricitons eg. cannot declare bonus or conduct share buybacks

NB: So far since its issue in Jun2004, pref div have always been paid in full every years.

[steven]

http://sg.finance.yahoo.com/q?s=C70.SI

52wk Range: 1.02 - 1.19

[camelking]

Was keen in such security sometimes ago.
There is one more concern besides those mentioned above

The current ultra low interest environment.
I am assuming that this low interest environment will last only for a few years. When interest start climbing, the market price of such security will probably drop. Will be good to buy such instruement in hige interest environment.

[Vseeker]

Yes, bond price move inversly to direction of interest rate..

To me, attractiveness of Citydev NCCPS is NOT the yields, but the windfall capital gains upon Company Trigger Conversion.
and while waiting for Conversion to eventually happen,
I'm getting compensated at 3.5% effective yields p.a (not too bad ! vs Bank deposit rates at 0.05%-0.25% p.a ; CPF OA Rate=2.5% p.a)

NB: based on CitydevNCCPS at current price of $1.105
annual 3.9c pref div / $1.105 => 3.53%

At current Citydev Share Price of $11.93, if NCCPS Conversion take place now,
then each NCCPS worth potentially : (0.136 * $11.93 + $0.64) = $2.26 !! - gave a Capital Gains of 105% !!

Even if I have to wait another 5 years for Conversion to happen,
105% Capital Gains in 5 yrs time ==> that's still around 15% p.a compoundede !!
ADDS in the annual pref-div at effective 3.5% p.a ==> that's around 18.5% p.a !!

[bookworm]

If interest rate is likely to remain low in forseeable future and lower than 3.9%, does it make more sense for CDL to redeem the NCCPS? Meaning that there is a good chance of sudden windfall for NCCPS holders.

But there again, local perpetual bonds are >4%, thus NCCPS is still a cheaper financing option for CDL. What is the trigger factor for CDL to redeem? Otherwise, holders will be holding on this perpetual hope.

[Vseeker]

Pref div per NCCPS is 3.9c p.a. eversince issue time.
"Cash component" for payment of the "one-off preferential cash dividend" upon Conversion is $0.64 per NCCPS

3.9/64 = 6.09%
=> So Arguably can said that 6.09% may be threshold for servicing costs for any replacement debts... ofcoz Company could prefer a much lower threshold.
...and I repeat arguably, coz things can be FAR less straightforward and we can argue till the cow comes home on this.

because it may be far less straightforward, nor are there certainty,
that's why NCCPS is trading at such huge discounts to potential Conversion values.

I'm vested and betting on a conversion within three years,
but windfall Conversion to take place or not ?.. it's for each of you to make your own judgement call.

[bookworm]

Hello! Vseeker,

What do you think is the event that could trigger a redemption by Kwek LB?

If you recall, when this instrument was crafted, there was an attached warrant to this NCCPS that was carefully timed such that the money from the warrant could be used to redeem the NCCPS. The main theme then was to utilise the Section 44 tax credits. Kwek was so proud then to claim at one AGM then that CDL was the first to come out with this innovative instrument before others started with their special div and rights issue. That was also the reason why this NCCPS was trading above $2.50 then.

Fortunately or unfortunately, market in 2006 was so good that CDL decided to use the monies collected from warrants to fund land purchases. So, NCCPS holders were in a way "sacrificed" then. The much aniticipated redemption did not happen. Tax credits expired unutilised. Price crashed. When asked at subsequent AGMs, his reply became the Board will evaluate the options and decide accordingly...

So, perhaps, you may wish to be a broken record to play this story again and again to Kwek to refresh his memory until a time that he just want to close it. Broadcast it to achieve better results. Afterall, $200m is a small amount to CDL, considering the amount he made during the last 6 years. Otherwise, in my opinion, it will continue to be locked as a cheap financing option. Agree?

Cheers!





The intent this instrument

[guru]

Hi all,

I do not know the history of the NCCPS but was there any issue price back then? I looked at the Capital structure of CDL and noted the capital/share comes up to approximately $1
For CDL to do the conversion, they got to folk out $.64 + 0.136 CDL shares. Though I do not know what are the conversion price, to convert that NCCPS to ordinary shares and for CDL not to lose out, I came out with the equation, $1= $0.64+0.136 CDL. This will make CDL share price to be $2.65. My thinking is that any price higher than this and CDL is better off just keeping this instrument. So even if the share price were to really drop below $2.65, it may not make sense for CDL to exercise the option to convert since it'll need to issue more shares to satisfy this conversion.

For CDL to consider conversion anything at current share price ($11) will value the NCCPS at $2.14.

Unless Kwek is holding a lot of NCCPS and he himself will do the conversion, I do not see the thing going through. Besides, even if interest rates were to go up for CDL, they've basically "locked in" this 3.9% of $330m of "debt".

For folks with no immediate need for cash and are happy with a pretty consistent 3.9% pa + a chance to make a windfall out of it, this is a good instrument. Other than that, you are bascially a bond-holder at current yield of 3.5% Perpertual bonds -)

[valuebuddies]

As quoted from the AR 2012

The Company has in issue 330,874,257 non-redeemable convertible non-cumulative preference shares (Preference
Shares), listed on the Official List of Singapore Exchange Securities Trading Limited. The Preference Shares are
convertible only at the option of the Company, into fully-paid ordinary shares of the Company at the conversion ratio
of 0.136 ordinary share for each Preference Share.
In the event the Company exercises its right of conversion, the Company shall pay to preference shareholders a
one-off preference cash dividend at the fixed rate of 64% (net) of the issue price for each Preference Share
(Additional Preference Dividend) and any preference dividend accrued but unpaid.

So the true value of the 1,000 NCCPS should be at least (136 x S$10.20 + S$640) = S$2,027.20. The current traded price is S$1,080 which is almost half of its true value. So is the steep discount mainly due to the uncertainty on whether CDL would trigger conversion?

What do you buddies think, is it a good place to park the excess fund while waiting for the next crisis?

[opmi]

As quoted from the AR 2012

The Company has in issue 330,874,257 non-redeemable convertible non-cumulative preference shares (Preference
Shares), listed on the Official List of Singapore Exchange Securities Trading Limited. The Preference Shares are
convertible only at the option of the Company, into fully-paid ordinary shares of the Company at the conversion ratio
of 0.136 ordinary share for each Preference Share.
In the event the Company exercises its right of conversion, the Company shall pay to preference shareholders a
one-off preference cash dividend at the fixed rate of 64% (net) of the issue price for each Preference Share
(Additional Preference Dividend) and any preference dividend accrued but unpaid.

So the true value of the 1,000 NCCPS should be at least (136 x S$10.20 + S$640) = S$2,027.20. The current traded price is S$1,080 which is almost half of its true value. So is the steep discount mainly due to the uncertainty on whether CDL would trigger conversion?

What do you buddies think, is it a good place to park the excess fund while waiting for the next crisis?

during the last crisis, NCCPS drops to 80 cents...if you bought CDLHT at 50 cents (with similar corporate 'guarantee'), you would have get 4X your money..

I am saying NCCPS is not great safe haven vehicle.