OKGNSPA "FORESTS"Current yield is 10.34% after grossing up for...

OK
GNSPA "FORESTS"
Current yield is 10.34% after grossing up for fully franked dividend (raw is 7.235% with one coupon to go); I compare all notes on a grossed up basis.

So on 14th oct, a note holder receives 102.56 worth of shares in GNS plus the final coupon payment. I conduct an 8% PV of this cash flow after outlay of 89.5 and I get NPV 16.0.

Then I do a pararllel calculation on the question "if I were to invest in a bank deposit with simple interest to Oct 14, what rate of return do I need to get an NPV of 16 on an investment of 89.5.?"

By using Goal Seek function in Excel, I get 70% now.

Clearly, the above sort of compelxity is not reuqired for a note being exchanged in such a short time (like GNSPA) but it must be used i suggest where capital gain kickers are involved some years in the future.

Note there are only two risks in the above trade. One is that GNS goes out of business between now and October. The other is that when you get handed your shares in Oct, there is a wave of selling that hits the shares as note holders get out. This risk can be removed using CFD's. (you sell short during VWAP period); This may not be necessary as I am guessing that GNS releases some news relating to financing of pulp mill during September during the expected wave of selling. There are about $100 million worth of FORESTS and GNS market cap is $1000 million so a part of this 10% of equity may be hitting the market in October 2008.

A full table of hybrids is available on AFR wesbite and you don't need to subscribe to AFR.

The other good notes in my opinion are
TIMPB 63% per annum return to Sep09
AAZPB 56% per annum return to Sep08
TPAPA 21% per annum return to Oct11
BNBG 41% per annum return to Nov10
BEPPA 29% per annum return to Jul12
MXUPA 40% per annum return to Apr10 (this is cash payout)
IANG 21% per annum return to Mar10

on AAZPB, there is a risk they step up for two years (pay an increased coupon.) I think this is unlikely but of they do, return drops to 20% per annum.

on MXUPA, Canadian parent is A-/BBB+ S&P.