takeover at these prices just not on, page-38

Clacoste:

Hybrids are very unusual - I dont personally believe the market actually has an appropriate valuation model for them. Originally they were darlings and everybody loved them the secure ( haha) return and the offer of upside. Well I dont think that any looked to flash after the GFC and my first venture into them in 2007 saw me take a 405 haircut.

They are no longer that hard - most have stepped up. So the interest rate after taking into account franking is good.

They have defined themselves to be in cyclical industries and then you look to the gearing and decide whether the company keeps on servicing them or they are in banks or stable companies. I dont do the banks - I think that the GFC taught me that banks are the only business in which you have this multiplier effect and amplify losses and profits depending on which way the world is going. Sold all my banking stocks very quickly and hybrids in banks is like being half pregnant - If a bank is in trouble the equity including the hybrids is lost.

The next thing to look at in cyclical businesses is how deep the cycle is and the risk. If they dont have to make up the distribution than its a bit of a negative but if it blocks the ordinary distribution than you have some protection. The conversion must never have maximums - if a sp has plummeted the company can raise equity easily by raping the hybrids they get issued at the maximum conversion number.

As regards ELDPA - I only got in at around $33 to $35 and knew they were not paying but I am using that as a trigger to get my capital out early and as a protection against a huge CR at low rates which destroys value of gap between TNAV and SP. CR's tend to give more buffer to hybrids so they climb especially in cases where the distributions are not being paid.

The Ords - average around 23c in my portfolio and I agree I do feel sorry for those who followed the rights. I always thought it was a hard ask to turn this around.

I think that most have lost a lot of money and only the few that have average under 40c are going to make money.

However my fear is that whoever would consider buying it would look to a CR to clear some of the debt. If it went down before the merger than what would happen is you would have to stump up more money to get the premium and it would be spread over the increased capital.

Lets wait and see - I however dont think that the AFR would have produced such a detailed report with names if something was not going on.