Principality 7% PIB

SJD

In the height of the financial crisis in 2008 I took two fairly sizeable punts one on Nationwide 7.25 at 73 and Principality 7% PIB buying at 53.
It's turned out v. well, although I cashed in early at 100 on the Nationwide but am still holding the Principality that are now 95 bid.

What I'm struggling with on the Principality is the whether they will call the PIB in 2020 or let it reset at the lower cpn and the impact on the price as that time approaches. The coupon resets at 3% +5 year Gilt (I believe) if it is not called. At the time of purchase the reset date was a long way off and I'd expected yields on the 5 year Gilt to have climbed since then. However, with the date coming ever closer and Gilt yields remaining low and the prospect of Principality of calling I am getting edgy.

Any knowledge/assistance on this PIB would be appreciated.

Thanks

Wozzitworthit

We have been mulling over what to do with these for a while (held in wife's name).

Your post has prompted some action and my wife has now sold these (96.5p with Selftrade)

(Wonderful things these forums for prompting the more procrastination prone of us to wake up and start thinking !)

007

PADDY

If 5yr Gilts remain at these low levels, I would guess they won't call them and you will end up with a much reduced coupon.

SJD

Good price Bond007, last time I got a dealing quote from HL it was 94.5. I'd take 96.5 so a marker has been laid down to the HL dealers for tomorrow.

My thoughts too Paddy, Given it's a small Welsh BS if the coupon is lower I'm expecting the price to drop away.

Not worth all the risk despite the really good yield, although the 14% in 2009 was a beauty!!

Time to sell I think.

Wozzitworthit

My wife paid a lot more than you did, but it was a few years before !

I noticed an hour or so ago that on the Contract Note there was no accrued interest paid and declared as such on the note- have never had that before on any PIBs/PSBs or Corporate Bonds, so maybe our "better price includes that - we are going to query this with Selftrade

I would put money on that being the case as a quick calculation shows that accrued would be 2.43p thus putting bid at 94.07p

Sorry I didn't spot that before

We would still have had sold as we put limit at 94p !

colin

Intresting one. i too have a few of these from 2008/9 .With the low intrest rates on offer at the moment the 7% looks okay for the next 4+ years. I think the crux comes what happens in July 2020 and the reset rate. what will the 5 year gilt be at this time . Also where do you invest any monies from a sale. This is always the decision with callable pibs. The few pibs left without a call date are pretty expensive at the moment

shaunm

I have a smallish holding that I purchased back in May13 @ 87.6p (yield on cost = 10.74%)
Oddly I'm planning to keep this holding until around 12 months before the coupon rate changes in June 2020, ie another 3 years. By that time the 5 year Gilt yield could be much higher. Should PIBS be completely out of fashion (ie they call them back in), then the yield to maturity is 7.27%.
With the margin on buying/selling PIBS being relatively high, I tend to "hold" unless a very good reason comes along.
On 1SBA (recent coupon re-set (March 2016), the price did not change a great deal until the last 3 months! (I sold August 2015)
Note that the coupon re-sets may start to go "up", instead of "down", thus providing some form of protection against future interest rate rises.
Be interested in your views!

colin

Shaun, agree with you entirely on this. The spreads certainly on some pibs are so wide they aren't worth selling. Had to move some leeds, skipton , and newcastle pibs from a trading a/c to my isa a/c, The spreads were so wide I sold but didn't buy back at the price i was quoted. The prices on the 1sbb, and 1sba look quite good at the moment. Bought some 1sbb in the february dip at 87p yielding over 7%.

shaunm

Colin, 1SBB is on my possibility listing
Although PIBS (other undated securities) the spreads are fairly wide, there are opportunities around
I suspect the main holders of PIBS, are "retired persons" who don't look at the call dates etc and are in for long-term, therefore prices do not adjust as perhaps they should do when "professional Institutional investors" get involved.
Looking at dips in pricing is part of my strategy, together having a very wide portfolio which is monitored for "pricing changes" on a weekly basis.
Holding undated securities is something one needs to watch, however with the ECB current buying of "corporate bonds", there is little risk for remainder of 2016.

Wozzitworthit

Just to round off my sale details


The contract note they produced on the Trade Date was just the basic sale at 96.5p

They produced another contract note 2 days later on Settlement Date which showed the addition of accrued interest, so my wife did in fact get 96.5p per share plus129 days interest.

simoncorkswill

Colin , was it not possible to just to get a dealer to approach market maker giving them 50 pounds and doing the deal ? Brokers have done this for me on many occasions .

SJD

Been cautious and sold half at 96.

colin

Simon didn't know about this. I have a saga share direct a/c , this is administered by Equiniti. I asked about doing a straight swap from my trading a/c to my isa a/c just paying their dealing fees but they said it couldn't be done. I had a similar problem a few years ago when Barclays were administrating Saga . I would have loved to hang onto those pibs, they were great little earners but it didn't seem to make sense paying tax on them in a trading a/c when i had spare funds in my isa

simoncorkswill

Equiniti are owners of Selftrade and I have done the deal across several accounts I run for family , for them to tell you it can not be done is really not on its done all the time , it simply means you have to speak to a dealer and you pay higher commission on the transaction , so with Strade it was 40 pounds each side on the contract plus effectively a spread of fifty pounds .

George

I hold these and the call date is just 3 years away now and the current price is a record high. So I'm wondering whether I should cash in now or hold and hope that they call them in rather than reset the coupon to a lower rate. Am I right in thinking that PIBS no longer count as capital requirements for banks so Principality is more likely to call them than reset them?

A reset at today's rate would result in a coupon of around 4% so the price could fall to around 80p if we compare them to current yields on the Prefs that I hold. However, I think the Skipton 6.785% were called in April 2017 although I cannot find any news to confirm it. This had a similar reset rate to Principality 7%. So I'd like to think they will be called in 2020 and the current high price may reflect the confidence investors have that they will reset (although all bond prices seem to high at the moment)

hind

Idealing do this for me regular on a trading and company account. Fee is £50 for the MM and £10 each account for idealing plus stamp if it is relavent on the holding

shaunm

This is being called as per today's notice
RNS Number : 7028K
Principality Building Society
24 April 2020

NOTICE OF REPAYMENT OF £60,000,000 7 PER CENT PERMANENT INTEREST BEARING SHARES ("PIBS")





We refer to the PIBS issued by Principality Building Society (the "Society", "we", "us") subject to and with the benefit of the special conditions of issue set out in the offering circular dated 28 May 2004 (the "Offering Circular").

Defined terms used in this notice shall have the meaning given to them in the Offering Circular.

Notice is hereby given that pursuant to Condition 6(2) of the Offering Circular, having obtained Relevant Supervisory Consent (as defined in Condition 6(7) of the Offering Circular) the Society intends to repay all of the PIBS on 1 June 2020 (being the "Reset Date" (as defined in Condition 5(2) of the Offering Circular)), at their principal amount, together with any interest accrued to but excluding the date of repayment.

The PIBS shall be cancelled forthwith from the Reset Date and may not be reissued or resold.

colin

Thanks for that info Shaun. I e-mailed them at the weekend asking this and still waiting a reply.
They have been good for me for a number of years but I feared they would re rate them at 5 year gilt +300 bp. So I 'm pleased, however where do we put the proceeds.
Also got Balfour Beatty 10.75% and IPF also due in the next couple of months so a lot of searching required. Thanks for the info..... what this site is good for

Laughton

I'm in the same boat Colin and, as you say, where to put the proceeds?

I know inflation has been subdued for a very long time now but can't help feeling that all governments/central bankers will need to stoke inflation going forward to help them effectively reduce the burden of all this debt they're creating. Therefore something with inflation protection built in is what I'm searching for.

All suggestions welcome (not yet more equities though or gold, of which I already hold plenty).

shaunm

The only one I can think of is One Savings Bank, 1SBB, the coupon sets once every five years
Past & current interest rates
Interest Rates
01/02/2011 = 7.875%
27/8/2014 = 5.988%
27/8/2019 = 4.6007% (current)
This is one of my core holdings
Current Price around 84.50p - which is a good entry price
Reset Rate 4.0% 5yr Gilts
New Rate / coupon from 27/8/24
Some risk (default) , but less risk from potential higher interest rates

arjungaur

Japan has been a first hand experience of how hard is it to escape deflationary trap, even with all the government debt fuelled stimulus and central bank buying equities, that's why central banks world over have 2% target, not even 1%, and definitely not 0%, as you are then spending half of your time in a deflationary environment

inflation however is very easy to handle, you tighten monetary and fiscal conditions and there you go, again first hand experience in all the developed economies for the past few decades

This should help understand the debt cycles and how to effectively reduce the burden of all this debt they're creating -

arjungaur

1SBB is 4.0% + 5yr Gilts while 1SBA is 3.4% + 5yr Gilts

https://www.osb.co.uk/media/1318/730_bond_prospectus_dated_25_february_2011_-_16292224.pdf