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!

Dividend Income – June 2017

Dividend Income

June is an important month for me, it marks the end of the first half of the year. It’s the time when I take a closer look at my finances and investments, to assess how my year has been so far and to plan for the 2nd half. Historically, June has also always been the most productive month for me every year in terms of dividends.  Barring any unforeseen special dividends, the 6th month of the year is set to retain that title this year. By a big margin.

I raked in RM3,750.74 in dividends for June from a total of eight different companies. Last month’s dividends totaled RM393.79, which as you can tell, is roughly only 10% of June’s dividends.

This is a huge milestone for me. For one, this is the first time my portfolio has crossed the RM3K per month threshold in dividends. Secondly, comparing to last year’s RM2,392.37 in dividends, that’s a 56.8% increase.

The figure for June 2016 was increased from RM1,852.37 (in the previous article) to RM2,392.37 here as I made a minor mistake in forgetting Tune Protect’s dividend of RM540 June last year.

Moving on, we’ll have a look at the companies that contributed to my RM3,750.74 in dividends. And then at my Freedom Fund’s performance.

Sunway REIT

SunREIT Dividend Income June
Sunway REIT Dividend

This Month’s Dividends – RM296.48

Total 2017 Dividends – RM583.85

Dividend Yield – 2.94%

Weight – 6.25% of the Freedom Fund

Malayan Banking Berhad

Maybank Dividend Income June
Maybank Dividend

This Month’s Dividends – RM1,013.76

Total 2017 Dividends – RM1,013.76

Dividend Yield – 3.82%

Weight – 7.83% of the Freedom Fund

Maybank’s DRP

A couple of weeks ago, I participated in Maybank’s Dividend Reinvestment Plan and opted to receive a portion of my dividends in shares instead of cash. This is the result of that. The total RM1,013.76 in dividends includes the share portion of my dividends.

Awesome Returns

Take a look at the dividend yield, that’s 3.82% yield for me – so far! This is only the first of two dividends to be paid out this year, the other being in October. I managed to purchase the bank’s shares when it was spiraling down back in 2016.

Nestle (M) Berhad

Dividend Income June
Nestle Malaysia Dividend

This Month’s Dividends – RM260

Total 2017 Dividends – RM260

Dividend Yield – 1.94%

Weight – 3.95% of the Freedom Fund

Tune Protect

Dividend magic income july 2017
Tune Protect Dividend

This Month’s Dividends – RM561.60

Total 2017 Dividends – RM561.60

Dividend Yield – N/A (Sold)

Weight – N/A (Sold)

Homeritz Corporation Berhad

Dividend magic income july 2017
Homeritz Dividend

This Month’s Dividends – RM244.50

Total 2017 Dividends – RM978.00

Dividend Yield – 6.92%

Weight – 6.25% of the Freedom Fund

Scicom (MSC) Berhad

Dividend magic income july 2017
Scicom (MSC) Dividend

This Month’s Dividends – RM168

Total 2017 Dividends – RM336

Dividend Yield – 1.92%

Weight – 4.71% of the Freedom Fund

Cypark Resources Berhad

Dividend magic income july 2017
Cypark Resources Dividend

This Month’s Dividends – RM426.40

Total 2017 Dividends – RM426.40

Dividend Yield – 2.41%

Weight – 4.66% of the Freedom Fund

AirAsia Berhad

Dividend magic income july 2017
AirAsia Dividend

This Month’s Dividends – RM780

Total 2017 Dividends – RM780

Dividend Yield – 2.65%

Weight – 8.26% of the Freedom Fund

 

The Freedom Fund

The Freedom Fund‘s updated stats are as follows:

Gross Investment: RM295,114.52
Market Value: RM388,720.81
Dividends (2017): RM8,138.90
Cash Available: RM34,000
Capital Gain: 31.72%
IRR: 12.76%

I aim to have at least RM25,000 at all times at the ready to invest in the case of a market correction. Ideally, I’d like to have RM50,000 in in the saddle. Trying to keep myself disciplined and at the same time I’ve been keeping busy adding more stocks to my buy list.

End.

Concluding this post, total dividends for the year stands at RM8,138.90. The Freedom Fund’s dividend yield comes in at 2.76%.

Same time June last year, my total half-year dividends were only RM5,933.18. That’s a nice 37.18% increase in dividends for me y-o-y. Moving forward, I expect to break the RM10,000 in dividends mark in September.

My goal set earlier this year in my Review of 2016 was RM15,000 in dividends for 2017. It’ll be tight and achieving that goal would ultimately depend on increases in dividends from my holdings.

I’ve seen an increase in readers having started investing this year! Please do write in and let me know how you’re doing. Even if you’ve started small, don’t forget to keep track of your investments. Thank you for reading!

I’m finally on Instagram! Follow me hERE or look for me on Instagram @dividendmagic