Impact on Preference Shares in a rising interest rates

Likewise, rising interest rates has impact on the share price 0f Preference shares. As dividends from P shares are non guaranteed (though the risk of non-payment is virtually zero) and the shares are traded, it is subject to market price fluctuation risks.

Currently, DBS 6% Preference share is trading at 107.4 cts, gross yield of 5.59%, net yield at 4.47% and OCBC NCPS 4.2% is trading at 103 cts (cum dividend), net yield of 4.08%. Hence, the increase in interest rates is likely to have more immediate impact in the OCBC NCPS 4.2% shares.

Both DBS & OCBC Pref Shares do not come with mandatory redemption clauses and the issuers may choose not to redeem the Pref shares after in issue of 10 and 5 years respectively.

Some points to note for;

DBS 6% NCPS
- Issued on 28 May 2001
- dividends, if declared by the Board, are payable semi-annually on 15 May & 15 Nov at 6% gross, ending on or prior to 15 May 2011, and thereafter 15 Feb, 15 May, 15 Aug and 15 Nov in each year at a floating rate p.a. @ 3 mths S'pore SOR + 2.28%.

To achieve a gross yield of 6%, the SOR has to be at 3.72%

OCBC Class G 4.2% NCPS
- Issue date 14 Jul 2003
- Dividend payment dates 20 Jun & 20 Dec
- Dividend at 4.2% (net), perpetual maturity


UPDATE: Interbank rates hit an all time high on 24/11/05