The traded price of the preference shares is subject to market forces. Among other things, it should mirror closely bond prices.

Perhaps this post will make things clearer.

http://www.lioninvestor.com/preference-shares/

If both shares are redeemed at par value, the one with the higher yield will of course be better.

DBS preference share is paying out 6%
OCBC preference share is paying out 5.1

Let say the OCBC trade at $103.xxx
If I hold the share more that 3 years to 4 years the DBS will be more profitable.
Also DBS has more credit rating then then OCBC.

Will this be true.

I just wrote a new post on preference shares. Hope it answers your questions.

If there are still doubts, feel free to ask again.

1) at the end of 5 years, if OCBC redeems,it can offer subscribers $100 or less than that? In what circumstances it will offer less than the issue price?
2) understand that it is not principal guranteed much like share purchase why would this $100 price not trade at the current ordinary price levels of $8.60 range? Is there a different class of trading market?
3) if OCBC redeems at any time at what price it will offer at redemption and what will the dependent factors be?

Maybe the answers to these questions may also be useful to other people. First time trying to understand preference share investing.

I can’t really advice on whether the preference shares is suitable for you as it will depend on your financial circumstance, risk profile and investment objectives.

Good points raised for your questions.

I will answer them in a separate post as I feel the information will also be useful to other people.

Thanks for sharing. The FAQ was actually given to me by OCBC, so it should be coherent with their sales brochure.

Yes, SGS bonds is safer. However, based on their current market prices, the yields range from 0.8% p.a. for a 1-year maturity bond to about 3.87% p.a. for a 20-year bond.

This is nothing close to what the OCBC preference shares is offering.

And as with all fixed income instruments, interest rate risk will always be there.

What do you think about this OCBC preference share? Is it worth taking up? It sounds to me that it is really a good deal with fixed income at relatively low risk.

What I dont really understand is that once it is listed on SGX, will the preference share price following the ordinary share price? Also does it mean if the preference share price goes up in the future and when we sell it in the market, what our return will be profit + fixed dividend payout in the past, is that so? If we are bullish on OCBC share price, I guess this will be a good chance to subscribe the preference share?

>> If the Bank should decide to redeem, it will pay the investor the issue price of S$100 for each preference share…

According to this statement, if OCBC were to redeem the preference share in future, it will be $100/share. If the price in the market is higher than $100/share, wouldnt the investors better off just by selling off in the market?

Sorry for shooting so many questions as I am totally new to the preference shares and thanks in advance for your advise

1. The previous OCBC preference shares (@4.2% dividend) released in 2003 were not redeemed upon maturity; as it was “trading above par” according to OCBC in Business Times. But it’s more likely because they are cheaper funding; as compared to 5.1% in the present issue.

2. As with fixed dividend/coupon products. Interest rate risk (and inflation risk in particular) should be a major concern.

3. In line with that, a comparably safer and more liquid product: SG Govt bonds, last paid out coupons in excess of 5% for their 5 year tenure bonds as recently as 1998.

That’s some food for thought.