I'm not sure about that. I think the gap will increase between BBI and BEPPA.
Why? SPARCs conversion is a GOOD thing for BEPPA, also BEPPA will not have the short term price pressure from converted SPARC's holders selling down."
The market is not rational though showman. BEPPA is a debt security and as such really should not "track" the equity (BBI)like it does. It trades like they are joined at the hip. I agree BEPPA will put a bigger gap on BBI eventually but only when BBI is considered by the market to be safe from administration. For example, a BBI price of 30c would indicate they are "safe" as the market would not price the company at that market cap ($800M) if there were doubts. Therefore, BEPPA should trade at a discount to face value when compared to other like bybrids and taking into account the 115 basis points over 90 day BBSW. When we see other debt hybrids trading at a discount of 30c to face value and backed by solid companies in no danger of administration, it is not hard to see why BEPPA will never trade anywhere near $1 or even 80c no matter how healthy BBI are. The scenario may change if the BEPPA terms are reset at some stage to reflect a more realistic interest rate. 1.15% above 90 day BBSW just doesn't cut it in this market. If they were resetting now, that margin would be more like 600 basis points or 6% above BBSW. That is why I will switch all my BEPPA back into BBI in a flash if the gap is big enough. Maybe favre can comment?
BBI Price at posting:
7.9¢ Sentiment: Buy Disclosure: Held
