On the 16th of February 2016, The Commonwealth Bank of Australia announced that it will redeem PERLS III and offer investors a rollover into PERLS VIII.   The options for investors holding PERLS III (ASX code: PCAPA) 2016 are: 1. Exchange PERLS III for the new PERLS VIII issue; 2. Redeem PERLS III ($200 face value plus last dividend ) for cash; 3. Reinvest proceeds in existing secondary market hybrids at higher yields/margins than being offered by the new PERLS VIII .   Our recommendation is either 2 or 3.   We ‘strongly’ recommend against option 1 –  we believe fair value for this new issue at a margin +5.80% (not 5.20 – 5.35% offered) and investors may be hurt in the secondary market upon listing. For those looking to re-invest in similar Bank Tier 1 issues, the secondary market offers better value with shorter ‘first call’ dates:  

  • NAB Convertible Preference Shares II (ASX Code: NABPB) Dec 2020 call – margin 6.05% p.a. (8.38% yield incl. franking credits)
  • Westpac Capital Notes (ASX Code: WBCPD) Mar 2019 call – margin 6.11% p.a. (8.37% yield incl. franking credits)
  • ANZ Capital Notes (ASX Code: ANZPD) Sep 2021 call  – margin 5.81% p.a. (8.19% yield incl. franking credits)