Bell Potter, in a note to clients has recommended Insurance Australia Reset Exchangeable Securities. These securities, which were actually originally issued by IAG’s New Zealand subsidiary, were originally issued in pre-GFC days, before the days of Basel rules, non-viability clauses and capital trigger events. Bell Potter thinks “one key advantage of IANG relates to it being an old style preference share…” but as always the main attraction is the near 400bps trading margin in conjunction with the December 2019 reset date, when holders can “request” redemption.
The use of the term “request” sounds as if the company has some wriggle room to deny a holders redemption instructions but in reality it is a lot more prescriptive. According to the 2004 prospectus, requesting redemption does not necessary mean redemption will occur. However, when a holder requests redemption the issuer must “redeem the RES for a cash amount equal to the redemption amount…convert the RES into a number of ordinary shares calculated according to the conversion number with a value equivalent to the redemption amount…or sell your RES to a third party on your behalf for the issue price ($100) plus any accrued interest payments, and deliver to you the cash proceeds…” in each case the holder will be delivered the face value or shares equivalent to the face value which can be quickly sold to produce cash.