Next week, BHP will pay its dividends on its USD subordinated bonds. If you don’t need the income and are thinking about reinvesting, the Royal Bank of Canada sub-debt may be an option. The bond is accessible from USD10,000, will diversify your USD holdings and offers a good return in stable investment grade paper
BHP’s USD October 2020s and 2025s are scheduled to pay coupons on 19 April 2016 (US time). Given the USD200,000 minimum investment for these bonds, investors will receive at a minimum between USD6,000 and -7,000. Given the small minimum investment size of the RBC offering, it presents an opportunity for investors who do not what to swap their investment back to AUD currently, to reinvest their USD coupons at an attractive rate. The RBC bond is a more defensive investment compared to resources, and generates a more attractive return than government or senior bank paper.
Royal Bank of Canada (RBC) is Canada’s largest bank, and one of the largest financial institutions in the world, based on a market capitalisation of CAD115.0bn (AUD116.5bn, 15 April 2016). RBC can be seen as similar to the CBA in terms of size and presence in Canada however it has better diversification both geographically and by product.
The Canadian banking system shares a similar profile to that of Australia in that the country is also rated AAA, and the banking system is strong and overseen by a globally respected regulator. Also similarly to the big four Australian banks, RBS has ratings in the ‘AA’ band.
The security itself is a ‘new style’ Basel III compliant subordinated Tier 2 note with a 10 year maturity date of 27 January 2026. It is a ‘bullet’ structure with no call date. The issue is very liquid with USD1.5bn outstanding. Like other Basel III compliant subordinated bonds, the RBC issue has a trigger which would convert the note into common equity if the bank is deemed non-viable by the Canadian regulator.
The bond is indicatively offered with a yield to maturity of 4% and a USD105.2 capital price.
Please refer to the factsheet for more information.
Note: Prices accurate as at 15 April and are subject to change. For more information please call your local dealer or FIIG on 1800 01 01 81.