Thoughts on Redeemable Convertible Preference Shares (RCPS)

Hi Richard,

Having some understanding of the Decmil (DCG) business over the years, erring on the side of caution is encouraged here. In simple terms, DCG are issuing a different sort of share to raise money  which ranks above ordinary shares in the event of a wind up. These shares pay a confirmed dividend of 12% fully franked based on their 20c issue price and have a 3 year term, whereby at that point, they may or may not be redeemed for ordinary shares i.e. DCG can kick the can down the road by paying an extra 1% pa  i.e. 13% and keep them on issue, or convert them to ordinary shares or pay the money back to holders in cash.

Preference: Sits above something else, in this case, sits above ordinary shares in the event of a wind up – similar to how bank hybrids sit above ordinary shares.

Redeemable: The company can redeem these and pay you back the cash at the end of the term.  They would do this if the business is going well, if the business is not going well, they will issue you with shares instead.

Convertible: They can convert to ordinary shares, either at the direction of the holder at the end of each month, or in 3-years time, at the direction of the company.

While the returns look attractive, the risk is clearly high. The other important aspect is that if DCG can’t pay the dividends, these can be paid in DCG stock at the end of the term. These are likely to be listed on the ASX.