OCBC has launched the Preference Shares placement again, with overwhelming response in June issue. The dividend rate is fixed at the same 5.1% per year for 1st 10 yrs and subsequently floating rate thereafter.

The Offering will be made by way of a Placement and an ATM Offer, which will open from 9.00 a.m. on 12 August and close at 12.00 noon on 26 August 20081. Of the total of 10 million Preference Shares available for subscription, 2.5 million Preference Shares (or S$250 million) will be offered under the ATM Offer, which is open to the general investing public.

Under the ATM offer, the minimum subscription is 100 Preference Shares (or S$10,000), and thereafter in multiples of 100 Preference Shares (or S$10,000). Retail investors can apply at any OCBC Bank ATM and ATMs of the other participating banks, namely DBS Bank (including POSB) and UOB Group. ATM applications will be subject to balloting if the total subscriptions exceed the amount available for subscription. The last public offer was about 11x oversubscribed.

The Preference shares is NOT risk free. You may want to take note of the following:

  1. Preference shares are traded like any normal shares
  2. They pay a fixed dividend
  3. It has an infinite life. OCBC is NOT obliged to redeem it but they have a call provision attached, so it may not remain outstanding forever.
  4. IMPORTANT: The issuer (OCBC) can FORGO paying the dividend if their earnings is insufficient. Failure to pay the dividends does NOT result in default of obligation. However, preferred shareholders rank in priority to the common shareholders when paying of dividends.
  5. Preferred sharesholders DO NOT have voting rights (except in financial distress). Thus, they CANNOT go to the AGM to “pack” the buffet.
  6. Preference shares are generally classified less risky than stocks, but more risky than bonds. This Preference Shares have been rated investment grade by rating agencies, with an Aa3 rating from Moody’s, A+ from Fitch and A- from Standard and Poor’s.

Generally speaking, our local banks are very conservative and well run. Therefore, barring unforeseen circumstances, I don’t foresee any default of dividend in the foreseeable future. Of course, higher returns always come with higher risks, investors should not compare preference shares with fixed deposit.

After all, with inflation expected at about 5~6%, even this dividend yield is probably not enough to prevent your savings from shrinking.


About the Author

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.
The views and opinions expressed in this article are those of the author. This does not reflect the official position of any agency, organization, employer or company. Refer to full disclaimers here.

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