It’s been almost a month since the controversial Preferred Shares of San Miguel Corporation (SMCPM) became listed at the Philippine Stock Exchange. However, even if its price per share dropped significantly, I am still confused on how the market is pricing it.
First of all, allow me to show you the salient features of the Preferred Shares:
Salient terms of the SMCPM
As you can see, the “par value” of SMCPM is at PHP75. Assuming that it will on October 15, 2012, the call price will still be PHP75 per share.
However, what amazes me is the fact that on its first listing day, the price per share of SMCPM closed at PHP112.50. It even went up the following day, but it eventually dropped to PHP93.00 as of yesterday.
Historical Price Chart: SMCPM
What is the point that I’m trying to make? Well, how the market is pricing it is difficult to comprehend. The difficulty is coming from the computation of “dividend yield/YTC” assuming it will be called on October 15, 2012.
In finance, the convention in solving for present value problems (or for this case, yield to call or YTC), requires the computation to use a “price per hundred” convention, or whatever equivalent. For example, in solving for the YTC of Petron Preferreds, which is currently trading at PHP106.50 with a par value/listing price of PHP100.00 and a dividend rate of 9.53%, you will get a YTC of roughly 7.68% using the Present Value Formula.
Thus, in solving for SMCPM’s YTC, the following adjustments need to be made:
PHP75 divided by 0.75 = PHP100 (this will become SMCPM’s translated par value/listed price)
PHP93 divided by 0.75 = PHP124 (this will become SMCPM’s translated current price)
According to the salient terms of SMCPM, the dividend rate stood at 8%.
Thus, performing a YTC computation for SMCPM using the terms provided plus the adjustments in the par value and current price, will yield to a negative value!
Guess what, even Bloomberg has this disclaimer in solving the yield-to-call of SMCPM:
Bloomberg Disclaimer: SMCPM
I might have been missing something that’s terribly basic, so if such is the case, please feel free to let me know.
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