Tata Steel issued 547,251,605 2% Convertible Cumulative Preference Shares (CCPS) of Rs. 100 each at an issue price of Rs. 100 each aggregating to Rs. 5,473 crores in Sept 07. As per the terms of the issue, six CCPS of Rs.100 each are compulsorily and automatically convertible on 1st September, 2009,into one Ordinary Share of Rs. 10 each, at a premium of Rs. 590 per share
Since it is a preference issue the preference shareholder has a higher right to the dividend than the equity shareholder. So unlikely that Tata Steel will skip dividend on the CCPS. The outflow is about 110 crores in terms of dividend.
A lot of water has flown below the bridge since then and the CCPS is currently trading around the Rs 23-24 mark. The Tata Steel stock has got hammered down in the current downturn with steel prices on a downward spiral.
I have listed down possible scenarios in terms of the Tata Steel stock price a year down the line. Looked at 5 possibilities, price remaining same, +10%, +20%, -10% & 20%. So if we buy 6 CCPS and multiples thereof I have listed down the cashflows out of the trade and the payoff in terms of return ( IRR)
Thursday, November 20, 2008
Tata Steel CCPS - Better bet
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7 comments:
Hi Ninad,
Again it is a good oppertunity. So far as Tata Steel price movement is concerned I think we are already seeing it's worst days. But steel as a industry all over the world is going through a rough patch and worldwide steel production in Oct 08 in comparison to Oct 07 is already about 20% down(China 1/3 prod cut) as per the World Steel Forum, so at least in the near term things are really very bad. So here the important question is how do we see the steel industry in Sep 09 which is about a year ahead? Do we think that Tata Steel's share price may not go beyond -20% by that time? If we can answer these question then we may be in a better position to trade this bet.
Warm Regards
Gcpradhan1
Hi Gcpradhan1
Good point. I think i should have put in a preamble on this post. The objective is that if u believe that Tata Steel has reached a botoom then as opposed to buying the stock it is better to buy CCPS.
Honestly I wouldnt want to make a bet right now in terms where the Tata Steel would be though I believe most of the negatives are priced in. However all other things being equal if the index & stock price remain around the same level next year, then CCPS would deliver a 14% return.
Cheers
Ninad
Hi Ninad, Yes you are right. The price after 1 year should be around the current level at least. Otherwise things will be really bad.
Warm Regards
Gcpradhan1
Hi Ninad,
How did you know TATA Steel have issued Convertible Cumulative Preference Shares (CCPS) and traded on BSE / NSE? Info pn any web site or from Anual report?
Do you know the way to know which other company have issued Convertible Cumulative Preference Shares or similar instruments?
Thanks
Prashant
Hi Prashant
I was a shareholder and hence got it under a rights issue.
I think there would be various other companies which would have convertibles but not necessarily traded on the exchanges.
Cheers
Ninad
Hey Ninad I had purchesed 240 CCPS which subsequently got converted to 40Eq shares..........can u pls advise my breakeven price keepin in mind time value of money.(with a decent discounting rate).
Hi Ashish
I am not able to get your question. The data points u have put are inadequate.
Cheers
Ninad
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