I have done a little studying of both classes of stock of Oil Sands Split, and I think I understand it a little better.
When the trust winds up in 2010, the preferred will be redeemed at $17. Because of its relatively generous dividend, the preferred has risen to $23 a share, yielding still about 6.5%.
The capital shares currently are trading at about $41 and Canadian Oil Sands itself is trading at $63. On the basis of the "wind-up" value the Split Trust capital shares whould be trading at $46, or about 12% higher than they are, so you might say that in a sense they are trading at a 12% discount.
The "retraction" feature requires that capital shares be paired with preferred shares, however. This means that anyone who had bought their original preferred shares at $17 would have been able to purchase capital shares at a discount, combine them with the preferred shares, and redeem them at the current price for COS shares. Very large blocks of stock get especially favorable "retraction" rates. Smaller blcks only get 95% of the total value back.
The "discount" on the capital shares will decline with time but also with any rises in interest rates that make the return on the preferred issue less attractive and therefore depress the price of the preferred. Since the offering in 2003, the preferred has enjoyed 35% capital gain as well as a good dividend return.
What all this means, at least as far as I can see, is that the capital shares (OST.UN) may offer an extraordinary opportunity, still, for long term investors. They are priced at 10% below their theoretical value, and they will be the beneficiaries of all increases in distributions from the Canadian Oil Sands Trust, as well as all capital gains in COS.
At least this is how I see it. In the past, when simple arithmetic has been on my side, I have done very well. |
