BT: Bank preference shares here take a beating (19 Sep 2008)

Bank preference shares here take a beating

Those sold to retail investors fall below $100 offer price, but selling activity is low

By SIOW LI SEN

SINGAPORE banks' preference shares, which only a few months ago were in great demand, have plunged in price amid the global market turmoil.

In particular, those offered to retail investors have seen their prices whipped and fallen below their offer price of $100, said bankers. But the selling volume has been low as the market for preference shares is pretty illiquid and this has exaggerated price movements, they added.

'The present market environment is gripped by panic with the latest credit developments coming out of the US over the recent days, triggering sell-off across the board,' said Clifford Lee, DBS Bank managing director and head of fixed income for global financial markets.

'As a result, the Singapore banks' Singapore dollar hybrid bank capital papers are also affected,' said Mr Lee.

'What is clear is that secondary market liquidity is low, and the only action now is in investors selling the bonds to hold cash. In an environment of low liquidity, even small trade volumes can move market prices,' he added.

United Overseas Bank's $1.32 billion 5.05 per cent preference shares, which began trading on Monday, fell to $96.96 yesterday. Because of strong demand, the bank had upsized its offer from the planned $1 billion.

OCBC Cap Corp preference shares were last traded at $94.40, while OCBC Class B preference shares were slightly better, ending at $98. Both preference shares pay 5.1 per cent and were heavily oversubscribed when offered to the public in June and July. The bank had sold a total of $2.5 billion.

Both UOB and OCBC had in their offerings a retail portion which could be subscribed for a minimum of $10,000.

DBS' 5.75 per cent preference shares offered in May, which were sold only to sophisticated investors at a minimum of $250,000, have performed better.

Yesterday, one dealer said it still managed to trade around $103.20 to $103.80. DBS had sold $1.5 billion in its May offering.

George Lee, OCBC Bank head of group investment banking, said it is important to note that the fall in the price of its preference shares took place on low trading volumes. 'OCBC's preference shares were more widely held by retail investors. Some retail investors could be selling the preference shares in order to stay liquid, or selling without full understanding as to how preference shares or fixed-income instruments should be valued,' said Mr Lee.

Noted one dealer: 'It's very good prices.' She was referring to the fact that the preference shares have become very good value.


Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.

AGVA - Why I missed the chance to sell?

AGVA Corporation Limited is a manufacturer of specialty multi-purpose and media storage products. Established in Singapore in 1983, AGVA was listed on the Singapore Exchange in July 2003. It's product includes sling bag, laptop cases, camera cases, CD/DVD wallets etc.



I first bought into this company via IPO subscription on 22 Jul 2003. I was lucky and got alloted 3 lot, priced at $0.21 each. I took a quick profit at $0.26 for a small gain of $127.79.

Subsequently, I picked up 10 lots of shares in this company on 09 Feb 2004 at $0.235 and in a hasty manner, 2 more trades in Mar 04 for 30 lots, and 1 trade each in May04, Jun04 and Sep04 in averging my costs to $0.21608 for a total of 80 lots.

I was too optimistic in this small company as I thought its house brand products were taking off and further, the company had very good operating cashflow with high yielding dividend payout.

As it turn-out, I was quite right on the positive operating cashflow and dividend payout, but grossly wrong on the prospects of its house brand. Although the company grew its revenue from 2003 to 2007, the absolute sales of its house decreased and the operating margin of the company decreased from 15.4% in 2003 to 5% in 2007. As of Sep08, my estimated intrinsic value for this company is only $0.087 which is only 40% of my purchase costs.






During my review thoughts on Jan 2006, I had intended to sell or reduce my exposure in this company. I had a chance in Jun-Jul 2007, but alas, I did not sell. I was too greedy and thought the price would keep going up as the volume was high then. I also did not want to realised a loss then. On the hindsight, if I had sold some of the 80 lots at $0.14-$0.15 that I have, I could have bought back now at 50% that price, $0.07.





This is a lesson to be remembered. Hopefully, the company could perform better in the comings years, one consolation is that there are quite a few insider buying whenever the price dip too low.