Perpetual securities not the same as perpetual bonds

The Straits Times; Published on Apr 16, 2012
Perpetual securities not the same as perpetual bonds
THERE are major differences between perpetual capital securities and perpetual bonds, and these terms should not be used interchangeably ('Genting S'pore reaches out to retail investors', last Tuesday; and 'Genting may be a sure bet but know risks of perpetual bonds', last Wednesday).

A bond is an IOU, and is listed as a liability on the balance sheet of an issuer, whereas perpetual capital securities are accounted as capital of the issuer.
Also, a bond receives regular coupon payments; perpetual capital securities receive dividends/distributions (at the discretion of the issuer). A missed coupon payment on a bond can result in a credit event or default. In contrast, perpetual securities can afford to miss dividends/distributions without any credit event.
A bond is ranked above a preference share and, in some cases, has the same ranking as creditors; perpetual capital securities may rank lower than creditors, or in line with preference shares.
It should also be noted that bonds, preference shares and perpetual capital securities are all plain vanilla or straight instruments and have been in existence for a long time.
In the case of the various perpetuals that have been issued in the Singapore market in the first quarter of this year, for example, those by Genting and Ascendas, they are not convertible; giving the impression that these products are hybrids is inappropriate.
A hybrid refers to a product that has equity and bond features, for example, convertible preference shares or convertible bonds. Thus only those securities that have both the characteristics of bonds and equity would qualify as hybrid securities.
I am unaware of any current perpetual bond issue in the Singapore market, though they may exist elsewhere.
Mano Sabnani
Perpetual securities not the same as perpetual bonds
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At:
MCF:
16Apr2012: Genting Perpetual Bonds out for Public
HWZ:
16Apr2012: Genting Singapore perpetual subordinated capital securities 5.125%