Notes, bonds and hybrids are among the more-predictable securities listed on the ASX which, amongst other characteristics, is one of the factors which make them attractive to certain types of investor. Interest and dividends are calculated according to a formula and the face value is returned to holders on a predetermined maturity date.
However, these apparently simple investments may be more complicated. In fact, most of the securities listed on the ASX are issued via prospectuses (or “product disclosure statements” as they are now known) with page after page of terms and clauses, some of which may always operate and some of which will only operate under specific circumstances.
One such clause is the “change of control” clause. Under this term, holders have the right to redeem their securities prior to the maturity date if control of the issuer changes. For example, if company A makes a takeover bid for company B and succeeds, then control of B is transferred to A and a change of control is said to have taken place.
This is what occurred recently with Tatts Group. Tabcorp made a successful bid for all the ordinary shares in Tatts. However, not only does Tatts have ordinary shares, it also has ASX-listed bonds (ASX code: TTSHA). Tabcorp did not make an offer for the bonds and they will keep trading until they mature on 5 July 2019.
The bonds were issued with a “change of control” clause which is common to many notes and hybrids listed on the ASX. As such, the takeover by Tabcorp has triggered this clause and Tatts has notified holders and informed them of their two options. One option is to do nothing while the other option is to redeem the bonds early at face value.
24 January 2018 is the last day of the period in which early redemption is available. Holders who wish to redeem their bonds must do so before or by the close of business on this date. Redemption will occur on 24 February 2018, with interest accrued until this date payable alongside the $100 face value.