Tara wrote:SKYSHIP wrote:A lot of over-complexity posted above.
1. Aviva will NOT do anything to disadvantage the pref shareholders. That lesson learnt and painfully obvious - to most at least
2. The prefs will trade with reference to interest rates and track pretty much the other company prefs we all know well
3. The statement below by Goseigen is demonstrably incorrect - witness the Aviva pref prices over the past 2yrs. Take GACA. In the Summer of last year they traded at 162p on a yield of 5.5% - a 62% premium to par. As inflation falls and as interest rates moderate, GACA will climb back in line with others. Clearly at 114p and still cum dividend, they are anomalously good value.
"The bigger problem long term is that these shares will always be priced as if there is a call option at par. The capital upside is therefore rather limited, more so than for other preference shares, NWBD for example, or the various PIBS out there whose capital growth is only limited by the zero-bound and credit spreads."
All well and good, but does anyone have any idea what GACA are going to be replaced with in less than four years?
Something with the same risk or less risk? Something with the same yield or less yield? What if they are replaced with something yielding 5% and so current holders are faced with a potential loss of income of 30% or 40%?
Without knowing much more about this it is difficult to know exactly how good a buy GACA are at the present price.
Regulators dislike these sort of prefs as they are now considered not sufficiently loss absorbing in a crisis, but the FCA have banned replacement capital securities from being offered to retail investors. That means that Aviva could only offer cash or ordinary shares to retail investors. They may simply do a non-coercive offer to buy back the prefs at a small premium to market price, as Lloyds and NatWest did with their prefs. Alternatively there is a risk that they would offer new hybrid securities alongside a low ball cash offer, with a sweep up clause. The hybrid securities would not be available to retail or anyone with less than say 200k nominal of prefs. The offer would be readily acceptable to institutions, not so for retail. I am not saying that this scenario is likely as I have no way of assessing the level of risk, but it would not be the first time that retail got a lousy offer compared to institutional holders.