In Singapore, the preference shares of this company seems to be quite stable. Anyone have experience in this?

What is this bro?

OCBC named world's strongest bank by bloomberg in 2012, so i suppose it should be good

Bloomberg

This post has been edited by hrevijay: May 5 2013, 08:00 AM

Only for singaporeans ? malaysian can open account acc and buy ?

Erm, not exactly sure what you are referring to but would this be the share ownership scheme that they offer to their employees? If so, than it is definitely worth it. Its a zero risk investment.

How it works is like this - you get an offer that allows you to purchase OCBC shares at a fixed price. For a period of 2 years (or was it 1?), you may invest up to 10% of your monthly salary. When the scheme matures, you may pick one of 3 options:
1. Convert the total amount to shares at the offer price.
2. Sell at current market value.
3. Have your money returned back to you with interest.

If the share value has gone up higher than the offer price, you make a profit regardless of whether you picked option 1 or 2. If it goes below the offer price, there's no loss to you cos you get your money back with option 3.

Take up the offer, unless you really can't afford to give up 10% of your salary every month.

First, one needs to know what are preference shares.

It is a share issued by a company to increase its capital but don't want to issue bonds (have to pay interest) and don't want to dilute their share holdings (reduced share price, need shareholder's approval etc).

Why offer? This is an alternative to bonds, because in case the issuer cannot pay the dividends, they do not go into default. It will have preference of dividend (hence it's called preference shares), which means it must pay dividend to these shares first before paying to common stock.

You may ask, then why people buy common stock, since preferred offer better dividends? This is because preference shares are non-votable. Which means, if the company want to change from a bank into a kopitiam, you have no say. Also, it has a callability option. Meaning the company may redeem in whole the issued share at offer price (par value) at agreed upon dates. Which means, even if your shares are now more valuable on the market, the company still can buy them back at par value.

On this product, it states that it's non-convertible and non-cumulative.

Non-convertible means these shares cannot be converted into common shares. This is to prevent it diluting the current share amount.

Non-cumulative means the dividend which is agreed upon, will be paid at the time stated. The dividend will not and can not be deferred.

Preferred stock must also be rated by rating agencies unlike common stock.

In short:

Pros: You enjoy higher dividends than bonds and common stock. You have more stable dividend payout than common stock. In case company goes under, you get preference on payout before common stock.

Cons: You have no voting rights. You have no participation in substantial growth of the company because if the company makes lots of money, their dividend to you is still fixed. They can redeem the shares at par value, meaning if the company's value grows, and they have cash in hand, they will redeem the shares and save on future dividends.

Thanks for the information!

By the way, according to OCBC's Webpage, the Net Asset Value/ Ordinary Share (price to book ratio) is at 6.68.

How do I justify with this number, whether or not the share price is expensive or inexpensive?

6.68 P/B ratio is quite expensive.

However, I'm not well-versed in evaluating bank stocks. They are too opaque in their accounting. Too creative, hard to value.

What you can do is compare the ratio with other banks in the region. If the number is lower than others, then OCBC is cheaper than the rest. If you see Bank of America (one of the more stable american banks) or Deutsche Bank, they have less than 1 I think.

Why not look at their previous dividend payout ratios and see if they can sustain the dividend payments? As far as I know, preference shares have fixed dividend payments but if the company can't pay them, they have the right not to pay. You have to look in the prospectus yourself.

Thanks for your input!

How have the prices changed over the past 12-months and what factors have driven the changes?





Over the past 12- months, there was no significant change in share prices. Notice that OCBC 4.2% stays between 1.00 and 1.05, and there is next to no change with OCBC 5.1%

The lack of change may be because investors and traders do not exchange these shares like the ordinary stock. This is because they hold on to it for the coupon/dividend. One cannot get the coupon if he does not own it. Furthermore, these particular shares are not widely held. Notice the low, low volume. The small fluctuations is just normal buying and selling. There really has not been any significant movement since 2009 after the global financial crisis.

What do you guys think?

evaluate them like bonds not shares. I'll give a longer explanation when i have the time. Catching a plane home.

Thanks in advance! I'm so confused about what is required of this question!

The reply I received was:

For more specific factors that impact the price movement of the preference stock.

For example, maybe a sudden rise in interest rate or the increased financial diffculties could have caused the preference share price to decline because investors would now demand a higher return on the preference share which pay a fixed dividend.


The OCBC Bk 2.4% preference share did not fluctuate much, so what can I mention about the change in price of this preference share?

On the other hand, the OCBC 5.1% Preference share fell from 105 to 103. How do I justify this change?

For sure u can on investment banking

According to http://investing.businessweek.com/research...?ticker=OCBC:SP,
the price/earnings ratio relative to the industry is 9.6x.

How do I justify if the share price for OCBC is expensive or not?

Why do I have the feeling as if we are doing your homework?

I think the dividend is handled this way.

Pros: you will be the first to get the dividend, but the rate is prefixed. Therefore the dividend payout will always be there.

Cons: You will only get fixed dividend even if the company get extra profit with huge dividend there, as the dividend payout is at the fixed rate.