Looking For Yield: SP Setia RCPS-i B

FD rate is so low (https://www.imoney.my/fixed-deposit). Where to find yield?

I thought of exploring this instrument further: Class B Islamic redeemable convertible preference shares in S P Setia Berhad (“S P Setia”) (“RCPS-i B”)

The RCPS-i B shall carry the right to receive preferential dividends, out of the distributable profits of the Company earned from the 1st day of the calendar month following the Issue Date (“Profits”), when declared and approved by the Board of Directors of S P Setia, at the expected preferential dividend rate of 5.93% per annum. From the period commencing on and including the 5th anniversary of the Issue Date until the Redemption Date (as defined below), an additional stepped-up preferential dividend rate of 1.0% per annum above the expected rate mentioned above, shall be payable on the RCPS-i B on an annual basis, provided that the aggregate of the expected preferential dividend rate (including the stepped-up preferential dividends, if applicable) on any preferential dividend entitlement date shall not exceed a total rate of 20% per annum. Essentially, the Company declares a preferential dividend of 5.93% per annum (payable semi-annually and based on the issue price of RM0.88 per RCPS-i B).

Subject to the availability of Profits, the preferential dividends, if declared, shall be distributable semi-annually (save in respect of the first distribution), with the RCPS-i B holders being entitled to the first distribution on such date being the next preferential dividend entitlement date of the existing Islamic redeemable convertible preference shares in S P Setia (or RCPS-i A) (in accordance with its terms) following the Issue Date, and subsequently, at successive intervals of every 6 months thereafter. 

The Company may at any time on or after the 5th anniversary of the Issue Date, at its discretion, redeem all (and not some only of) the outstanding RCPS-i B by giving not less than 30 days’ notice in writing to the RCPS-i B holders of its intention to do so, subject to compliance with the Companies Act, 2016 (“Act”), including where such RCPS-i B is intended to be redeemed out of the capital of the Company, such notice of redemption shall be subject to all directors of the Company having made a solvency statement in relation to such redemption in accordance with the provisions of the Act. The redemption of the RCPS-i B shall take effect on the 30th day from the date of the notice or such other later date as may be specified in the notice (“Redemption Date”). The notice shall state the Redemption Date and the book closure date to be used to determine the RCPS-i B holders who are entitled to receive the redemption payment.

At current price of RCPS-i B of RM0.655, the implied dividend rate is 5.93% x RM0.88, translates to close to 8.0% dividend rate per annum.

Did a quick regression & forecast test for SPSETIA mothershare vs RCPS-i B to see whether we can tell RCPS-i B is under or overvalued if compared to its mothershare:

sp r square

The test shows an R-square of less than 30%, may be possibly due to the fact that the conversion option in the RCPS is significantly out of money, resulting in the RCPS being tagged alike a fixed income instrument. Nevertheless, based on a 95% confidence range of 0.651 – 0.83, the RCPS is currently trading closer to the lower end of the range.

One may need to understand on whether we will see any recovery for the property sector in the next 2-3 years? Currently, the charts look rather bearish for the mothershare and Malaysia listed property index. But at current implied yield of about 8% and I think SP is one of the larger property development company that is backed by a strong shareholder, I might want to consider.

SP Setia Mother



This post is a not an investment advice or endorsement. Please refer to general disclaimer of this blog.

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