European Regional Development Fund

BOV 3.5% bonds

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  • igrech (11 months ago)

    BOV 3.5% bonds
    Any one can explain why the Series 1 trades almost at par, while the Series 2 of the 3.5% BOV bonds trades around 97%?

    Re rights issue, are we expecting profits to increase in relation to the new capital, that is, would it be possible to
    keep the same Return on Equity?
  • Grech293 (11 months ago)

    Hi Ivan, I'm not sure why the price of the Series II 3.5% BOV bonds are trading at a discount to the Series I. I can't think of a reason why.

    Regarding the rights issue, I am aware that Systemically Important Banks (also referred to as OSIIs) are required to hold more capital and eligible liabilities and I believe that probably part of the reason behind this issue of shares is to satisfy this requirement. Holding more equity and eligible liabilities doesn't produce more income and so if I'm correct, the bottom line will remain unchanged after the issue of this capital (and so ROE may go down). On the other hand, both BOV and HSBC in Malta have to keep more capital (and eligible liabilities) and it's not unlikely that both will slightly revise their margins to compensate for this new requirement. Over the long term I'd be surprised if the ROE decreases substantially.
  • igrech (11 months ago)

    Thanks for your analysis. I actually have a position in Series II of the BOV bonds. I had bought these because I thought they would be more liquid, but it seems to be opposite! From my understanding the risk in the 2030 bonds should go significantly lower once the rights issue takes place. Am I right?
  • Grech293 (11 months ago)

    You're right in principle because there the equity base will be larger after the rights issue. I don't think that the price of the 2030 subordinated bonds will reflect this tbh.
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