gnspa, page-10

Is GNSPA better buy than GNS?
Here is my view and I would be happy to hear other views:

GNSPA is trading around 50. If you buy at this price, AND they continue paying the interest, you get 7% fully franked dividend (BUT THIS IS BASED ON FACE VALUE OF 100); So in effect you are getting 14% fully franked or 9% over bank bill rate. This reflects the risk but if you think Gunns are going to survive long term, even though equity will get smashed, these are a great buy?

On top of the 14% per annum yield (note they are fully franked so this equates to a gross "money on deposit" yield of 19.8% per annum - am I correct?), you also get the possibility of a 50% capital gain in the years ahead when Gunns redeems the notes.

My guess is that retirees are liquidating either their own holdings or through income funds which hold hybrids. Or is there an expectation they will freeze repayments for the next quarter or so.

If they stop paying interest and convert to equity, you get roughly 50% capital gain (less any minor change in price due to market falling ahead of being able to sell the conversion shares. Conversion is probably unlikely as dilution would be huge and throw the company into the arms of noteholders.

Any comments?