OCBC Bank plans to sell $1 billion worth of preference shares to major investors in the next few days to shore up liquidity. The last issue was in July 2008 and August 2008, right before global financial crisis.

The bank will be offering a coupon rate at 4% that will be paid twice-yearly.

The payout is non-cumulative, which means that if the bank does not pay dividends this year, it is not obliged to make it up the following year. The shares will be callable after 5 1/2 years in 2018. This placement will be offered only to institutional investors and sophisticated investors, with a minimum tranche of $250,000.

Preference shares and other perpetual securities have been very popular with retail investors lately, but many do not understand the risk of investing in preference shares.

If you think Preference Share price will not drop, take a look at how OCBC 5.1% Preference Share performed since inception. It has dropped as much as 15% during financial crisis.

Below are past preference shares issued by OCBC:

  1. January 2003 – Amount: $500 million; Dividend: 4.5 per cent
  2. May 2003 – Amount: $396 million; Dividend: 4.2 per cent
  3. January 2005 – Amount: $400 million; Dividend: 3.93 per cent
  4. June 2008 – Amount: $1.5 billion; Dividend: 5.1 per cent
  5. August 2008 – Amount: $1.5 billion; Dividend: 5.1 per cent
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Ivan Guan is the author of the popular book "FIRE Your Retirement". He is an independent financial adviser with more than a decade of knowledge and experience in providing financial advisory services to both individuals and businesses. He specializes in investment planning and portfolio management for early retirement. His blog provides practical financial tips, strategies and resources to help people achieve financial freedom. Follow his Telegram Channel to join the FIRE community.
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  • Hi Ivan,

    Do you know why the 5.1% OCBC preference shares drop so sudden on 4th of June? I thought it was supposed to rise since the latest issue is only 4% interest payment whereas the 5.1% preference shares offered a yield near to 5% based on the current share price.

    I’m looking forward your valuable advice.

    Thanks.

    • Hi, Desmond,

      It is very simple, June 4 is the ex-dividend date. The closing price of June 1 (Friday) is $106.8, the opening price of June 4 (Monday) is $104.5, the difference is about the dividend paid to you, which is $2.05.

      This has nothing to do with the new issue.

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