Last March 27, we first published that Petron is issuing preferred shares but back then, the details were not yet available. Yesterday, yours truly got an SMS from a bank providing further details on the preferred share issuance. So here you go. We have 25 days to ready that investment capital!
Caveat emptor. This is not a risk free investment. There is risk of loss here especially if you need to pull out your money prior to redemption date, you’ll be forced to sell in the market at prevailing rates (which may be lower than listed price).
Petron Preferred Shares
Petron (PSE: PCOR) aims to raise P15-billion with an option to increase it further by P5-billion in case of over-subscription. But for retail investors, here’s what we need to know:
- Series 3A
- First optional redemption date: 5.5 years after listing or any dividend payment date afterwards (this is sort of equivalent to the maturity of a bond)
- Indicative Rate: 6.8002% – 7.1502% p.a.
- Series 3B
- First optional redemption date: 7 years after listing or any dividend payment date afterwards
- Indicative Rate: 7.0737% – 7.4237% p.a.
- Dividend Payment: Quarterly
- Tentative Rates Setting Date: May 23, 2019 (final official rates expected to be announced by this time, but should be within above range)
- Tentative Offer Period: May 27-31, 2019
- Tentative Listing Date: June 10, 2019
What Are Preferred Shares Again?
Preferred shares are basically certificates of ownership to a company, much like a common share of stock (which we trade in the stock market). It is called preferred since it has a guaranteed and fixed dividend income, unlike a common share wherein dividend income is not necessarily given every year, and if there is, the yields tend to vary.
They are also called preferred because in the event of bankruptcy (knock on wood), those with preferred shares have a higher claim on the assets of the company (e.g. preferred clients), compared to owners of common shares (e.g. commoners LOL).
And since it is a share of stock, it can be traded in the stock market much like a common stock. But since it is preferred, it is not as liquid as the common stocks. There are few sellers and buyers of these stocks because holders tend to hold them for the whole duration, since it has a guaranteed dividend yield.
How Much is the Minimum Investment?
Unfortunately the SMS did not say, but banks usually have varying minimum investment amounts. The usual minimum investment amount here is P50,000, but again, depends on the bank. So best to inquire with your preferred bank.
How Can We Avail of Preferred Shares?
For the Petron preferred shares, inquire with the following banks / underwriters:
- BDO (BDO Capital and Investment Corp) (PSE: BDO)
- BPI (BPI Capital and Investment Corp) (PSE: BPI)
- Chinabank (Chinabank Capital Corp) (PSE: CHIB)
- PNB (PNB Capital and Investment Corp) (PSE: PNB)
Petron may appoint other banks as necessary.
Do you have to open a savings account with these banks? Yes, if you are availing of preferred shares, they will ask you to open an account with them since they will deposit the dividend income as and when it comes to that account. But if you’re still exploring, the existence of an account is not a pre-requisite for you to enter the bank’s branch and inquire. 🙂
What if I Cannot Invest Within the Deadline?
If you are unable to subscribe during the listing, you can still avail of preferred shares in the local stock market via the usual stock brokers (e.g. COL Financial, First Metro, BPI Trade, etc). because again, the preferred shares will be listed in the stock market. But, if ever, the selling price will likely be higher than the listing price of P1,000 per share because the sellers are already factoring in the dividend yields. In short, the purchase price is already market driven (e.g. like perhaps in the P1060 to P1070 range to account for the 6-7% interest per annum). Then it fluctuates from there depending on when the next dividend payment is.
Note that dividend income is subject to 10% tax (vs bonds which are taxable at 20%). I mentioned bonds because though preferred shares and bonds are different (the first is ownership while the latter is lending to the company), essentially, to the the common Juan, they are the same and need not complicate it: park your money with the company, they will pay you interest annually, then they will return the principal upon maturity. So essentially, same banana, different pajama.
Again, caveat emptor. Juan can lose money especially if they need to pull-out the invested amount prior to redemption date. Or in case the issuing company goes bankrupt! Study the investment first, before you risk your money. Not all investments are for everyone. It should be matched with Juan’s investment O-H-A (objectives, horizon, appetite).
To learn more about bonds (and essentially preferred shares), watch below video available in our brand new YouTube channel (don’t forget to hit the subscribe button)!
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Images from Petron website.