Home Investment Investing Knowledge DBS Makes Preference Shares Available to Retail Investors

DBS Makes Preference Shares Available to Retail Investors

E-mail Print PDF

After selling $1.7bil in preference shares to institutional investors within hours in Oct 2010, DBS has offered part of the latest tranche of its preference shares directly to retail investors.

What are preference shares?

Preference shares are shares in a company which have priority ahead of ordinary shares in receiving dividends, but confer no voting rights. In the case of DBS’s preference shares, DBS (the issuer) has the right to redeem the shares under certain conditions. Holder of the shareholders however do not have the option to redeem, but may sell the shares on the open market (not unlike regular shares). Non-convertible preference shares (as in the case DBS's issue) cannot be converted into preference shares.

Yield

The DBS preference shares carry a dividend rate of 4.70% per annum, payable semiannually.

Minimum denomination

The preference shares are priced at S$100 each, in board lots of 100 shares. Minimum investment is thus $10,000.

Risks

The Preference Shares have been rated “A” by Fitch, “A3” by Moody’s and “A” by Standard and Poor’s. These ratings are generally the third most positive type of risk ratings. In layman terms, the preference shares have been deemed to be at risk of default or not paying dividends only under unfavorable economic conditions.

Returns from preference shares are thus theoretically more uncertain than the interest from fixed deposits since their yields are typically conditional on the issuer making a level of profit sufficient to pay dividends. Moreover, the DBS preference shares are non-cumulative, meaning dividends which are missed due to the non-fulfillment of conditions will not be paid retrospectively when financial conditions improve.

In addition, unlike fixed deposits, there is a possibility that investors receive less than the principle amount if the preference shares are sold on the open market. This may occur for example if market interest rates rise significantly or if the liquidity for the preference shares becomes very low due to a shortage of buyers.

However, compared to DBS ordinary shares, the preference shares can be expected to have a less volatile market price.

Term

The DBS preference shares are perpetual (i.e. have no expiry date), but are callable (redeemable) by the bank in 2020.

Application procedure

Applications can be made via any DBS, POSB, OCBC or UOB ATM  from 9.00 a.m. on 11 November 2010 until 12.00 noon on 18 November 2010.

Conclusion

With a yield of 4.7%, the DBS preference shares have a much lower risk-reward ratio than many of the structured deposits promoted by banks (including DBS itself).

The shares also have a much higher yield than any Singapore dollar fixed deposit (about 1% interest), the STI ETF (about 3%) and the recent SIA bonds (2.15%).

The DBS preference shares are thus probably the most attractive low-risk investment option currently available to retail investors, at a fairly low denomination. The retail tranche is likely to be oversubscribed.

Glossary | Forum | Disclaimer

Last Updated ( Monday, 10 January 2011 03:22 )  
Facebook Twitter Digg Delicious Stumbleupon RSS Feed 

Search

Login Form


Latest Comments