tim/timpb

I continue to watch in amazement as both TIM and TIMPB fall. But as I have mentioned in the past, I think there may be an opportunity here and the over-correction in price of TIMPB versus TIM is only making the opportunity more attractive.

The question for those watching TIMPB is "what am I missing?". I genuinely would like some guidance as to why this does not work.

Putting aside for the moment the 13.5 cents fully franked dividend on TIMPB (and there may be some doubt on the payout despite the CEO announcing it was company's intention to pay interest on both TIMPB and TIMG), the capital flows of my idea are as follows:

Buy 1 TIMPB today at 36
Sell 3 TIM short CFD at .15

If TIM=ZERO in Sep09, payout=9 cents
If TIM=25 cents in Sep09, payout=70 cents
If TIM=50 cents in Sep09, payout=95 cents
If TIM=75 cents in Sep09, payout=20 cents
if TIM=$1.00 in Sep09, payout is a loss of 55 cents (but you could stop loss at TIM=81 cents (breakeven);

Once again, if they actually pay the interest as stated by Sol, there is an extra 13.5 cents fully franked. Short of any change of terms, this trade looks low risk to me and, I am thinking given the illiqudity of TIMPB, is not something any hedge fund would be looking at.

Thoughts or comments welcome.