This post is odd because it is the first time I am posting for CPPU, Convertible Perpetual Preference Units. I am posting this because I believe that there is a potential in it.
FraserComm CPPU is currently trading at $1.085 (21st Jan 2013) with a 5.5% dividend. This is higher than the current yield for FraserComm CPPU (of course, we expect this to rise). Thus with a 10,000 of shares (An investment of $10,850), every quarterly we will get $137.50 as interest. However, we have the option to convert it to ordinary shares at $1.1845 per share. Thus if we convert, we will get 8442 shares of FCOT worth $11,355 (At $1.345 per share). That gives us another profit of $505. Thus, we get a total of $640.50 worth of profits from a $10850 investment in 3 months. It seems a very good deal.
Of course, there are opportunity cost which is that there is a period of time where you can't really trade it. Moreover, there are odd lot shares which we want to avoid. Thus, the best strategy is to buy 19,000 shares of FraserComm CPPU because once you convert, you get 16,040 shares, reducing your odd lots to the minimum.
I am vested with 20,000 shares of FCOT and am pondering whether I should use this strategy. Wonder whether there are any loopholes in what I have described. If not, I will sell my FCOT shares and use the money to execute this strategy.
Hi there,
ReplyDeleteWas wondering if you can elaborate more clearly on the conversion part of the FCCPPU to ordinary shares?
Thanks bro!
Hi iamnikkin,
DeleteBasically, if you buy FraserComm CPPU, it gives you a fixed return of $0.055 cents a year for every unit you hold. Plus every 3 months, they allow you to convert it to ordinary shares aka FraserComm shares at a rate of $1.1845 per share.
Thus, if you have 1,000 FraserComm CPPU shares, you will be able to convert it to 844 shares of FraserComm. This happens every quarter, depends on whether you want to convert.
One thing which FraserComm can do is to redeem it. If they redeem, they will redeem at par value of $1 per share. But you will have enough time to convert it should they decides to redeem it.
Hope it helps.