Q: Hello, Based on 0.33 CSU.RT, purchase and cost of 3.03 rights being 0.33x3.03= $0.99. We can acquire new CSU debentures at a total cost of $133+0.99=$134 appx ( FV $100 and Debentures with no right with management to redeem ). Does it sound accurate ?
Questions:
1. CSU debentures ( existing ) are currently trading at $137. What do you expect the trading range of New Debentures, which will be listed after Oct 6 ? My assumption is that new debentures could trade at a higher price than $137, due to No Management redemption right ( All other terms, interest etc being identical to present debentures ).
2. These debentures will pay interest based on 6.5% + 0r - Rate of change of CPI, over preceding 12 months, as at Mar 31, each year. Looking at the present and projected inflation scenario, if the rate of increase of CPI, declines over time, compared to current high rate, the annual interest rate for debentures could see a decline. Would this not cause the Debenture ( like other Bonds ) market value/price to decline ?
Please correct these assumptions and provide your thoughts. Thank You
Questions:
1. CSU debentures ( existing ) are currently trading at $137. What do you expect the trading range of New Debentures, which will be listed after Oct 6 ? My assumption is that new debentures could trade at a higher price than $137, due to No Management redemption right ( All other terms, interest etc being identical to present debentures ).
2. These debentures will pay interest based on 6.5% + 0r - Rate of change of CPI, over preceding 12 months, as at Mar 31, each year. Looking at the present and projected inflation scenario, if the rate of increase of CPI, declines over time, compared to current high rate, the annual interest rate for debentures could see a decline. Would this not cause the Debenture ( like other Bonds ) market value/price to decline ?
Please correct these assumptions and provide your thoughts. Thank You
5i Research Answer:
We do not think the new debentures will trade higher, because with the recent warrants (allowing holders to swap) the existing debentures essentially have no redemption clause anyway. If the company calls them for redemption, investors will just exercise their warrants. #2 Yes, if inflation does decline (it is set once a year for these bonds) then the coupon will fall and the price of the bonds could decline. That being said, in such a scenario other bonds will decline as well, and as a comparison to others CSU's issue (with built in inflation protection) may still be attractive to investors.