I note GNS equity is rallying but GNSPA has not yet reacted to...

I note GNS equity is rallying but GNSPA has not yet reacted to the good news. If GNS survives, and I suggest the signs are good that it will, GNSPA is a better buy than GNS.

Why?

Let's make some conservative assumptions:
- buy GNSPA at 52
- company decides to convert to equity in Oct 2011
- exit strategy is to sell equity from conversion. Price at which equity is sold will need to be be discounted below VWAP (assume 12.7% discount below VWAP or $90 conversion value versus $102.56);
- BBSW stays at 3.5% to Oct 2011

Rate of return is equivalent to 43.5% PER ANNUM, a return that could not (easily) be replicated on the equity (year in, year out);


Also, GNSPA ranks ahead of GNS in terms of both security and dividend priority;


If for some reason GNSPA does not convert, running yield is still a very attractive 16.3% PER ANNUM

Comments?