Preference Shares in Malaysia – Takeover of IGB Corporation by Goldis

What are Preference Shares?

The first thing that comes to mind to most Malaysians when Preference Shares / Preferred Stocks are mentioned is dividends. We will expect a higher rate of dividends compared to Ordinary / Common Shares. However, apart from dividends, there exist several other key features contained in a Preference Share.

  1. If and when a company is insolvent, preference shareholders are entitled to be paid from assets of the company first, before ordinary shareholders;
  2. Most preference shares have a fixed (and higher) dividend rate; and
  3. Preference shareholders typically do not have voting rights.

 

IGB Corporation Berhad’s Takeover by Goldis Berhad – Free Tickets to the Show

A huge part of why I’m doing this introduction on Preference Shares is because I’m actually electing to receive Preference Shares in lieu of cash / ordinary shares when Goldis takes over IGB Corp (a company I’ve invested in).

So this is your ticket to actually see how a corporate takeover works and more importantly, join me as I take my first step into the world of Preference Shares.

I’ll of course, be updating this periodically.

A Brief Introduction

Goldis Berhad actually owns 73.40% of IGB Corp and a takeover has been on the books for a long time. A takeover offer can be made to other shareholders if you own more than 50% of a company. 

To make this easier to understand, I’ll be using my own shareholdings as an example. I own 4,000 shares of IGB Corp, bought at RM2.87 per share.

Take note that IGB Corp closed at RM2.97, the trading of shares has since been suspended. The shares of IGB Corp have been valued by Goldis at RM3.00 per share during the takeover exercise.

There are 3 ways for me, as an IGB Corp investor to cash out from this takeover.

  1. I receive 100% Cash (RM3.00 per share). I’ll receive RM12,000  in cash and make an instant gain of RM520 (A 4.5% gain)
  2. I receive 30% in Cash and 70% in Goldis Shares. I’ll receive RM3,600 in cash and 2,800 units of Goldis Shares which are going for RM3.10 per share as of today. (A 6.96% gain)
  3. I receive 12% in Cash and 88% in New Redeemable Convertible Cumulative Preference Shares (RCCPS). I’ll receive RM1,440 in cash and 3,219 units of new Preference Shares valued at RM3.28 each. (No gain)

As you may well have guessed, I opted for Option 3.

IGB Corp Goldis RCCPS
Option 3 – RCCPS (Don’t forget to affix your RM10 Revenue Stamp and enjoy the post office queue)

Details of the Preference Shares or RCCPS Scheme

Tenure: 7 years

Dividend Rate: 4.3% (semi-annual payment)

Redeemable: Goldis Berhad can purchase/buy back the preference shares from and including the 4th anniversary of the issue date up to the maturity of the 7-year period.

Convertible: 1 preference share can be converted to 1 ordinary share at any time during the 7-year period.

Cumulative: If and when there are any missed dividend payments, they are to be paid at a later date by Goldis. ie. it’ll be owing to preference shareholders until the tenure of 7 years.

 

In Summary

4.3% Dividend Rate

With the RCCPS option, I’ll receive a FIXED return of 4.3% on my 3,219 units of preference shares at RM3.28 each. That’s RM454 every year for 7 years. In contrast, Goldis Berhad’s dividend yield is less than 1% currently.

The Redemption

I will be holding onto my preference shares for a minimum of 4 years. After which, Goldis will have the option to Redeem and buy back the shares at their discretion.

This is the only part of the whole exercise that worries me as I would like to hold onto those shares for as long as I can, and at the end of it all, convert them back to ordinary Goldis Shares.

But! Historically, Goldis has not redeemed their existing RCCPS and it matures in 2020. If that’s anything to go on.

I’ll just have to keep an eye out after the 4th year for any news of redemption.

End.

I hope I’ve managed to help some of the IGB Corp investors here clear up most of the issues and queries you have regarding the whole takeover exercise.

In short, and after my analysis, the RCCPS option is the way to go. The 100% cash option is the worst, so please don’t go that route. If you want cash, go for Option 2, and sell your Goldis shares after.

If you’ve got any other questions regarding this or if I’ve made any mistakes (I’m a 100% new to this), please do get in touch in the comment section below or on Facebook.

Thank you for reading and enjoy them Preference Shares!

8 thoughts on “Preference Shares in Malaysia – Takeover of IGB Corporation by Goldis

    • Hi Polla,

      I’ve explained this countless times.. FDs don’t offer you the potential of further increase. You’ll only get that fixed %.
      I can change my Preference shares to ordinary shares anytime I want within that 7 year period. Ordinary shares can increase in value, and over 7 years, I’d say there is a big chance that it will. I hope this addresses your question.

      Also, where can you get a 4.3% promo FD? I’d like to know because all I’m getting right now is 3 – 3.5%. Thank you in advance

      • Hi.. there’s many promotional FDs that offer 4.3%. Currently hllb, sometimes rhb or pbb…
        https://www.hlb.com.my/en/personal-banking/promotions/cny-fd.html

        The condition here is min placement of 10k to 20k for a long term tenure 1 year and above (yours is 7 years). I believe every year, banks will continue to fight for deposits and offer 4.3%

        Hence, I find that this preference shares is quite similar to a normal fd.. and fd is a guaranteed principle return unlike shares. So, in my point of view, I don’t find the above preference shares tempting enough to risk yourself investing for a 4.3% yield. If higher yield around 6-7%, yes I would consider. With IGB offering 4.3%, I would rather opt to cash out and place in a guaranteed principle investment since there’s not much difference to a normal fd

        But anyhow I’m also still learning along the way, and different people has different strategies in investing.. just curious to know your point of view.. and since u view IGB has upside potential, I probably guess that will be your main reason for it..

        • Hi Polla,

          I don’t believe banks will continue to give you the 4.3% every year. It might be lower next month, or even higher.
          But the MAIN reason I go for the shares is yes, for the upside.

          When you put 20K in an FD:

          1. You do not get to enjoy a share in the bank’s profit. A bank is a great business to own. An example would be my shares in Maybank. Last year, I got a 6.64% dividend yield. And my shares earned me a paper gain of around 9%. To me, an FD is for me to park my emergency cash. Maybe around 10-20k worth of it.

          2. You’re locked in. You can only do 2 things with an FD, to withdraw early and lose the interest or leave it for a year and get that 4.3%. My preference shares have a tenure of 7 years, but I’m not locked in. I can switch it to ordinary shares whenever the returns of the ordinary shares are higher than p.shares. These are more complicated financial instruments where you’ve got to know what you’re doing to really benefit from it.

          3. With IGB offering 4.3%, I would rather opt to cash out and place in a guaranteed principle investment since there’s not much difference to a normal fd. This is the worst possible decision.. For the rest of you reading this, if you want to cash out, go for the 2nd option and sell your Goldis shares.

          I hope I’ve answered your questions. I know a lot of you view FDs and that 4.3% return as an investment, but trust me, they’re not. I get my 4.3% in dividends and in the long term, I get to grow my wealth and portfolio along with the companies I own. Putting your money in an FD doesn’t give you ownership of anything.

          • Yes, all your statement is true if you can assure and ascertain the price of Goldis is above RM3.00 or RM2.98(your purchase price) and above. It will be advantageous.

            But what if it the current price falls below RM3 and u need the money urgently, u suffer minor losses too if u are force to sell at that price.

            Similar to your maybank shares, because now the market is good u are able to enjoy 9% paper gain. But few years ago, the share price was below RM9, u will suffer -9% paper loss.

            So what i’m trying to say is not to say that FD is the right thing to invest and shares is wrong. What i don’t want people to misunderstand about is that the share price does not necessarily stay above purchase price and to hold it, there will be a risk u need to consider. For your case above, this risk of price falling below RM3 is compensated with a 4.3% dividend yield. So as investors, we need to be aware of this and whether we are able to tolerate this risk because 4.3% yield is still consider low. There’s no right or wrong here, just which option suitable for individual needs.

            Anyway, its good that u can share all these so we can exchange views. Thanks for sharing.

          • Hi Polla,

            Yup it is extremely important for us all to understand that there isn’t a right or wrong when it comes to investing. It all boils down to your risk appetite.

            How I mitigate this risk? I invest long term. The money I invest is money I am 99% sure I won’t need in the future. I make sure I’ve got a good system set up whereby if I need cash urgently, I have them sitting in my FD. Paper gain or paper loss for the short term doesn’t concern me. What I look at is more like 10-20 years from now. I hope that by then, everyone would still be here and I can attest to the fact that good companies, in the long term, will grow. And grow big they will.

            Think of it this way when looking at the preference shares I just opted for. Let’s compare apples to apples first. P.shares vs Ordinary shares.

            Goldis at its current price today, is giving 0.65% dividend yield. My p.shares give me a 4.3%. AND I can switch it to ordinary shares any time I want depending on the share price of Goldis. So its a no brainer to go for the p.shares.

            Now on to FDs vs shares. Lets take 4.3% as the rate. The argument against FDs is always inflation. You may think your money is growing with the economy but in reality, its barely keeping up with inflation. Ie. your every day expenses. Which is why I never call placing your money in FDs “investing”.

            But how does shares beat inflation? Well all businesses keep up with inflation, for example Goldis as a developer. When building materials go up, their costs go up. What do they then do? Pass it on to consumers of course, so your property prices go up. That’s my rationale. Let the businesses deal with inflation and/or deflation while you collect your dividends.

            Of course, there’ll be risk, but to me, it’s even riskier if everyone only relies on FD as an investment. There will be no growth in wealth. Be it shares or any other form of assets, it has to generate sufficient returns to first cover inflation, the remainder will be your profit, your growth.

            I really do enjoy exchanging views with everyone =D
            Hopefully I’ll have enough material to get a post up about this soon.

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