Friday, August 24, 2012

Questions about the SMC Preferred Shares Offer


Dear Investor Juan,

It says that the it is a perpetual share hence no maturity or tenor but SMC has call options/early redemption dates:

Series 2A - 3rd to 5th year (7.5% gross or 6.75% net)
Series 2B - 5th to 7th year (7.625% gross or 6.8625% net)
Series 2C - 7th to 10th year (8.0% gross or 7.2% net)

Individual investor tax rate is 10%. 

SMC may or may not redeem the shares during the call option period. If not redeemed, the step up rate is:
-5th yr, higher of a. Dvidend Rate / b. 10yr PDST-F + 3%
-7th yr, higher of a. Dividend Rate / b. Interpolated 15 yr PDST-F + 3%
-10th yr, higher of a. Dividend Rate / b. 20 yr PSDT-F + 3%

What does this mean?

Dividend payment is quarterly. Does it mean that say I get 500 shares at P37,500 for 5 years, every 3 months within the 5-year period, I will get 682 per quarter?


Dear Henry,

Yes, the shares are callable, which means SMC has the right, but not the obligation, to buy back the shares from investors on the given dates (even if investors are unwilling). If SMC does not exercise this right, the dividend rate may increase based on the rules you mentioned. "PDST-F" stands for Philippine Dealing System Treasury - Fixing, benchmark interest rates at different maturities/tenors that are computed daily based on the prevailing yields/prices of Treasury bonds.

And you're right, upon closer examination of the prospectus, dividends paid to individuals (who are Philippine citizens) are subject to 10% withholding tax. Domestic corporations will however receive dividends tax free. If you buy 500 Series 2A shares, you are therefore entitled to 6.75% x 37,500 pesos = 2,531.25 pesos per year after tax or 2,531.25/4 = 632.81 pesos per quarter.


Dear Investor Juan,

I've seen the prospectus of this investment and its 600 pages long, and as I'm not into accounting, I don't think I will understand most of it.  So I rely on outside intervention.

1.  Accdng to the trust manager in HSBC this is perpetual share, how do I get my capital back? Is it by trading it back to the bank?
2.  If so, does the bank I choose play a big part in whether I will be able to re-sell my shares after 7-yrs, for example. I ask this because minimum investment at HSBC is 750,000 but only 200,000 at BDO.  

Girlie Scout

Dear Girlie Scout,

Like other preferred shares, these will be listed on boards of the PSE, so you can just ask a broker to sell your shares on your behalf.

From the information that you shared, it seems that your choice of bank will only make a difference in terms of the minimum investment that they accept. I'm not sure, but I think the higher minimum for HSBC is due to the limitations imposed on the activities of foreign banks in the Philippines.

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