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I've written this article on preference shares a long time ago, suitably titled as Preference Shares Part I. I thought I should finish that article now, haha, after so long!
To have a quick recap, let's go through some of the terms. Nothing much had changed since the last definition, but today I'm not in the mood for fancy words, so let's just use plain Jane terms. There are a few terms in preference shares that need to be understood.
Non-cumulative : This means that if they did not give out a payment in the stated date, they will not accumulate that payment to pay more in the next payment date. In other words, the payment is not guaranteed, unlike a bond. However, all of the preference shares I saw state that if the ordinary shares are given a payment, they are also obliged to pay for the preference shares. Cumulative means that if the payment is somehow not given for this particular payment date, it will be accrued and paid on the next payment date. Non-cumulative is important because I just read from my older post that only non-cumulative ones are placed in Tier 1 capital for banks. Not sure if that's still in effect now, given the new basel III regulatory rules.
Non-convertible : This means that the preference shares cannot be converted into ordinary shares. Convertible of course means that it can be changed to ordinary shares. Read more...[caption id="attachment_2156" align="alignright" width="150" caption="Photo by Tom@HK"][/caption]
I've written this article on preference shares a long time ago, suitably titled as Preference Shares Part I. I thought I should finish that article now, haha, after so long!
To have a quick recap, let's go through some of the terms. Nothing much had changed since the last definition, but today I'm not in the mood for fancy words, so let's just use plain Jane terms. There are a few terms in preference shares that need to be understood.
Non-cumulative : This means that if they did not give out a payment in the stated date, they will not accumulate that payment to pay more in the next payment date. In other words, the payment is not guaranteed, unlike a bond. However, all of the preference shares I saw state that if the ordinary shares are given a payment, they are also obliged to pay for the preference shares. Cumulative means that if the payment is somehow not given for this particular payment date, it will be accrued and paid on the next payment date. Non-cumulative is important because I just read from my older post that only non-cumulative ones are placed in Tier 1 capital for banks. Not sure if that's still in effect now, given the new basel III regulatory rules.
Non-convertible : This means that the preference shares cannot be converted into ordinary shares. Convertible of course means that it can be changed to ordinary shares. Read more...
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I've written this article on preference shares a long time ago, suitably titled as Preference Shares Part I. I thought I should finish that article now, haha, after so long!
To have a quick recap, let's go through some of the terms. Nothing much had changed since the last definition, but today I'm not in the mood for fancy words, so let's just use plain Jane terms. There are a few terms in preference shares that need to be understood.
Non-cumulative : This means that if they did not give out a payment in the stated date, they will not accumulate that payment to pay more in the next payment date. In other words, the payment is not guaranteed, unlike a bond. However, all of the preference shares I saw state that if the ordinary shares are given a payment, they are also obliged to pay for the preference shares. Cumulative means that if the payment is somehow not given for this particular payment date, it will be accrued and paid on the next payment date. Non-cumulative is important because I just read from my older post that only non-cumulative ones are placed in Tier 1 capital for banks. Not sure if that's still in effect now, given the new basel III regulatory rules.
Non-convertible : This means that the preference shares cannot be converted into ordinary shares. Convertible of course means that it can be changed to ordinary shares. Read more...
