This is an otherwise unremarkable split share issue investing in international financial companies.
One of the great headaches for those who invest in the Capital Units of Split-share companies is the immediate drop in NAV on issue – all issue costs come out of their part of the investors, while the preferred shareholders sit back and grin. This, I believe, is one reason why the terms on the Preferred Share portion of these offerings is both so good and restricted to those who also buy capital units … if there’s a fat coupon on the preferred, it should rise in price instantly on issue day and therefore give the investors something, at least, to smile about.
In this issue – Copernican filed a prospectus today – the situation is a little different. Issue expenses estimated to be $750,000 as well as the selling commission of 4.25% of the total raised will be paid by the manager.
They’re not doing this just for their health, of course. The manager will be getting a fee of 1.95% and will be compensated by the company for the service fee of 0.40% of the Capital Unit Value that they will pass on to the agents. And – just to make sure that everybody’s good and locked in – there’s a redemption fee payable to the MANAGER (not the company!) that starts a $1.05 per $20 unit (over 5%!) and declines until it is $0.55 per unit (still 2.75% of original investment!) in June 2013. Then it’s zero for the last six months of the fund’s life.
Deferred Sales Charges come to the split share world!
Still – there won’t be that instant drop in NAV as soon as the Capital Units start trading! That will be meaningful to some.
Unless hounded by vast crowds of importunate clients, I won’t be adding this particular split-share corporation preferred issue to the HIMIPref™ database. The fact that pref holders will only get their original $10 back on any redemptions means that even a small increase in price will lead to a negative YTW and the YTW scenario will always be sufficiently short-term that the system won’t want to trade it.
It would certainly be possible to improve the programme so that the disincentive for early redemptions was recognized … somehow … but until there are a lot of issues like this it hardly seems worth the effort. I will be watching this issue with great, if informal, interest.