Forum Archive Index - April 2001

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

> 
> one further question:  if one had cash on hand (and a desire to be
> involved with our national airline), would you see buying airva
> shares a better investment than buying its capital notes?  i almost
> understand the risk thingy -- cap notes less risk, but also less
> potential.  what other factors should be considered? jefley
> 
Jefley, this is a tough question, particularly as the Air New Zealand 
capital notes of which you speak do not exist yet!

As a rule I don't favour capital notes for this reason.   As an 
investor I am usually looking for either maximum growth or maximum 
safety.   Capital notes provide neither.

But where capital notes are in the form of convertible notes (that is 
they pay you an interest rate return until at some point in the 
future they convert to shares) the situation is a little different.
With convertible notes you are effectively buying shares in the 
future at some future price, while being paid interest on your 
capital in the meantime.   If the share price goes up before your 
convertible notes convert, then you have lost this capital gain 
(that's bad).   But generally capital notes will have a better cash 
payout per dollar than the equivalent dividend you would get if you 
invested that same money in the shares (that's good).

I like capital notes where that the head share price is not going to 
go up significantly during the term of the notes but where growth 
prospects look better after that.   I feel AirNZ is in this category.
But which investment is best really depends on the interest rate of 
the notes, the conversion terms, and the expected dividend yield of 
the shares at the time you want to invest.   And all of this 
information is unknown as I write this. SNOOPY




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