Odd happenings with SFF Bonds
On the face of it, investors are still offering to buy Silver Fern Farms' five-year bonds at a premium, even though the meat processor and exporter will redeem them a month early in November.
Wednesday, October 6th 2010, 10:23PM 
1 Comment
by Jenny Ruth
The best offer to buy the bonds is apparently at an 12.5% annual interest rate even though the bonds carry a 10.25% coupon.
Logic suggests getting one's money back a few weeks early by selling on market should require a discount to the repayment price and the fact of the early redemption should have boosted confidence in the bonds, pushing down the yield.
Silver Fern Farms is repaying the bonds early because a marked improvement in its balance sheet has allowed it to renegotiate its banking facilities at more favourable rates. Its banking syndicate involved Rabobank, HSBC, Westpac and CBA.
Its equity ratio at September 30 was about 70% with debt of about $118 million compared with a 52% equity ratio and $183 million of debt a year earlier.
Silver Fern Farms is redeeming the bonds on November 15 rather than the December 15 maturity date.
David Speight at Direct Broking says the apparently illogical price is simply a quirk of NZX's pricing formula.
Any investor prepared to accept the market offer would get $100.228 per $100 face value today. If that investor holds the bonds until they are redeemed, they would receive face value plus 61 days accrued interest (since September 15) or $101.713 per $100 face value.
The bonds traded as high as 17% in March and last sold at 15% on September 27.
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