Low risk shares 2

Some common questions on Preferance Shares

(1) The min investment amount for pref share is S$10,000 ?

Reply: Right

(2) If I want to sell the pref share anytime, can I sell the 100 pref shares or do I need to have at least 1000 pref shares in order to sell. Similar to stocks which needs at least 1 lot (1000 shares) to sell?

Reply: U can sell the pref share through any brokerage firm (eg. UOB KH, CIMB, KimEng etc), as your shares are all consolidated in the government central depository CDP. The lot size for pref share is 100, instead of the normal 1000 for other shares. Hence u can sell in 100 (or 1 lot for pref shares)
  

(3) At maturity date, the bank will buy back these pref share at the current price listed on SGX?

Reply: No, the local bank (offeror of pref shares) will only gurantee to buy back at the offer price of $100

(4) Are the banks required to buy back the pref share?

Reply: It depends on the terms of the pref share offering.

Of cos, if they dont buy back, they would need to pay u the dividend  :)

At maturity date, depending on terms of the pref share (example the OCC5.1%), the dividend might be reduced to bank swap rate + 2.5%

(5) Are the dividends cumulative?
Reply: No the dividends are non-cumulative, which actually means, if in the very unlikely event, when the semi-annual payout occurs, DBS bank is doing very very badly, say in May 2011, they can choose not to pay $235 for your $10K vested. Come Nov 2011, when the bank has recovered, they can pay u $235 for the next 6 mths. However they will not pay u for the May 2011 dividend that was missed.

This is what is meant by non-cumulative.

In the event of this, ordinary bank shares will also not be paid dividend, as pref shares have a higher priority over ordinary shares. This has never happened in all the local banks (DBS, UOB, OCBC) history, even during the LehmanBros market crash of 2008

(6) Can pref shares be converted into ordinary shares?

Reply: Nope pref shares are not eligible to be converted into ordinary shares. Hence the term "non-convertible pref shares"

(7) Will the local banks want to buy them back?

Reply: They can choose to buy back at maturity date, maturity + 6 mths, and maturity +12 mths etc