DBS Preference Shares – Buying at a premium

For investors who missed out on the initial public offering (IPO) of DBS Preference Share (4.70%), they can still buy them at the Singapore Exchange (SGX).

The last transacted price of the share on Friday 26 November was $102.34, which was at 2.34 per cent premium over the original issue price of $100. Investor had to pay $10,234 for minimum lot of 100 shares. On top of this, the transaction costs, covering brokerage commission, SGX trading fee, clearing fee and GST, came to $35.87 (based on one brokerage house). Total outlay would be $10,269.87 for a $10,000 investment in DBS Preference Shares.

Investors can look forward to 4.70 per cent dividend rate, which is not guaranteed, on a semi-annual basis. At the end of 10 years and if DBS redeem the preference shares then, they may receive $10,000 (again subject to conditions), which is the liquidating value of the shares.

On that basis and because the preference shares are acquired at a premium, the internal rate of return on the constant stream of fixed dividends is 4.36 per cent. This is lower than the stated 4.70 per cent dividend for investors who were successful at the IPO stage.

Investors must therefore take into consideration how much premium they are willing to pay for the preference shares and the trading transactions costs before bidding for these shares. The higher they bid, the lower rate of return they can get.

Copyright © 2010, limkimtong for Living Investment

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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