Jollibee finally sets dividend rate for preferred shares sale

The SE Asian quick-service restaurant behemoth Jollibee [JFC 203.40 ?3.83%] plans to sell P12 billion worth of preferred shares as part of a P20 billion shelf registration.

The prefs are split into two series, Series A and Series B, where Series A [JFCPA] preferred shares will carry an initial dividend rate of 3.2821% per annum, and Series B [JFCPB] will carry an initial dividend rate of 4.2405% per annum. Both JFCPA and JFCPB will be priced at P1,000 per share, but aside from the different dividend rates, there are other differences between the two stocks with respect to step-up rate and redemption terms.

You can click here to see a PDF with JFC’s explanation of the differences. The quick-glance differences between JFCPA and JFCPB are in the step-up terms: Series A step-up rate is the higher of the initial dividend rate or the 7-year BVAL plus 4% on the 3rd anniversary of the listing, while the Series B is the higher of the initial dividend or the 10-year BVAL plus 4% on the 5th anniversary.

That said, there may be other differences in the redemption terms of and other aspects that I have not mentioned, so if you are interested, please read the disclosures and contact your broker for more information.

MB BOTTOM-LINE

Companies will usually do whatever possible to avoid paying a higher rate after the step-up, so it’s probably best to enter any long-term trade for prefs with an understanding of the time frame that the step-up provision basically establishes for redemption.

Both are basically perpetual preferred shares, but with terms that could potentially make them so punishing to JFC that it would be crazy for the company not to do whatever it could to redeem those shares before triggering the step-up provisions on the 3rd anniversary for JFCPA and the 5th anniversary for JFCPB. It’s important to realize that redemption before step-up is incredibly common, and not at all something that an investor should worry about.

The benefit of these preferred shares is the dividend through the pre-step-up life of the preferred share, not the potential to earn 10-year BVAL plus 4% or whatever in the event that JFC finds itself in such a weird financial place that it’s unable to redeem the shares before the step-up date. If you’re interested, check with your broker as there may be other purchase terms (like minimum purchase amount) that may be important to know before making long-term plans.

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