Saturday, April 28, 2012

Newbie bond recommendation - Aviva plc 8.25%

I am posting this recommendation on behalf of Newbie together with its potential return from leveraging. You can read the prospectus of this bond for more information. This bond can be purchased through StanChart which has a ticker of AVV:NYQ.

Buy USD200k Aviva 8.25% perpetual
Place SGD125k as deposit at 0% interest
Take USD200k loan @ 1.5% interest
USD/SGD exchange rate at 1.25

Interest earned on Aviva per year USD 16,500.00
Interest on USD200k loan per year USD 3,000.00
Net interest differential per year USD 13,500.00

Principal Amount of SGD125k USD 100,000.00

Net yield per year 13.50%
Net gain per year USD 13,500.00

That's USD1,125 per month or SGD1,406.25. Just for capital of SGD125k.

No FX risk since you took full loan of USD200k to pay the purchase.


Anonymous said...

how about tax deduction and holding tax,cost from NYSE?

Newbie said...

Fixed Income issued by a UK incorporated company (e.g. Aviva PLC) that is listed on NYSE will not be subject to either UK or US withholding tax.

For Singapore residents, we have the added benefit of Dividend and Interest Income not being subject to income tax.

So for this Aviva PLC issued 8.25% fixed income that is listed on NYSE, Singapore residents will receive the full 8.25% interest and will not have to pay any Singapore income tax.

Good deal huh!

(other Issue/Listing combinations may be subject to tax)

Anonymous said...

Hi Newbie,

1.Which banks will I be able to do the lending to take the loan?
Are private banks preferable?

2.Is USD200K the min loan obtainable with 125K deposit?

3. Will I really get 1.5% in general, or it will depend on the bank/other factors?


Anonymous said...

When does this close?

Ao said...

I dont think retail investors are able to apply this method. This is because standard charted bank only allow accredited investors (people with S$250k net asset) to take bond financing. Unless there is a way to get around the accredited investor barrier

Anonymous said...

Hi Newbie,
based on Ao comment, will a person be able to get a rate of 1.5% with just SGD 125K deposit in the first place?

Anonymous said...

hi. i went to SCB to asked if what you mentioned in the post is possible. they seemed a bit confused and this was the response i got.

1- 125k SGD placed in exchange for USD at current exchange rate (approx. 100k). 1.3% interest for protecting against fx rates

2- the exchanged USD is leveraged to 200k at 1.3% interest

total interest incurred is 2.6%, but i didn't ask if its only principal. someone from SCB is suppose to follow up with me later when they have more details.

another question i have for you is that... when you purchase the bond from SCB, is it at the publicly traded price?

Newbie said...

2.6% sounds ok but I find weird why must pay 1.3% for insurance. Cannot just keep as sgd cash? N of course must pay commission for buying the. Aviva. See how good your negotiation is. So conclusion doable at 2.6%? But I would recommend bargain down to 1.3%

Newbie said...

If libor is 0.3%, why should u pay 2.6%?!