No. of Recommendations: 8
The deadline for converting your BN shares to BNRE.A is 1pm EST today.
I have selected (the option is provided at IB) to convert all of my BN shares to BNRE.
Note that you have the option to convert from BN to BNRE.A only as a one-off right now, however you can convert back from BNRE.A to BN at any time (BNRE can also be converted to BN at any time, but what you will own here from the offer is BNRE.A). That is why BNRE has been consistently trading above BN.
Risk worth discussing - you want that BNRE.A will continue to provide this option (BNRE.A convertible to BN) indefinitely, and indeed if they announced that they were ending those conversion rights then the investor backlash would be insane with ongoing legal battles. It would almost be pointless given that it is the design of BNRE.A to act as BN mirror (only with the different taxation treatment on dividends). I am effectively certain the conversion rights back to BN will be preserved if they want to avoid being sued to death and have their reputation hugely damaged.
Because conversion from BNRE to BN can be done at any time, understandably BNRE never trades under the quote of BN, or if it does so, it is only by a cent or so and very momentarily. On the other hand, BNRE regularly trades a little above BN and sometimes by a few percent. Just chart BN and BNRE together and compare the quotes each day - make sure you select both the NYSE (or the Canadian exchange) for both the comparable versions of BN and BNRE.
The BNRE.A shares are not presently listed, but will be listed as one of the conditions (on both the Canadian and US exchanges). In the unlikely event that they are not able to be listed, the conversion will be cancelled and you just keep your BN. In the documentation the conversion has public listing of BNRE.A as a necessary condition, in other words the public listing is guaranteed if and only if the conversion goes ahead.
If you like arbitrage trading, you can convert all your shares of BN to BNRE now, and then gradually trade them back to BN whenever BNRE.A is trading above BN. This is a slow way of gaining a percent or so for free.
Whilst I do keep that in mind, the real reason for me to hold BNRE.A over BN is that BNRE.A pays the same dividends and BN but classed as a capital return rather than a dividend, so this entirely skips the 25% Canadian withholding tax on dividends. My capital gains are increased, however where I live I pay dividend tax (by means of the 25% holding tax) but not capital gains tax.
The raw savings amounts to 25% of the 0.9% dividend, which is a 0.23% increase in equity each year by holding BNRE.A over BN. Not much, but not an irrelevant amount also - each decade you are increasing your equity by more than 2.3% (only a little more given that dividends tend to grow, and can be reinvested). In a world where it is hard to make a buck with equity yields so low, every 0.23% counts. ( More importantly, and what made me side with doing the conversion, is that there is a non-trivial chance of there being large special dividends in the future - they have not done this in the past but Flatt has talked about special dividends being possible in the future whilst discussing their expected capital accumulation. My feeling is that they enjoy to find ways to spend money on opportunities that they are ''almost too'' imaginative in finding, and there will not be large special dividends - but it is a real possibility and in that situation the tax savings would be far greater. )
For others that pay both capital gains tax, there is no significant advantage for holding BNRE.A over BN, other than the trade arbitrage. If you catch BNRE.A trading more than 2% or so above BN, take the 2% advantage right then, rather than waiting 10 years for the tax advantage to start piling up.
The disadvantage is losing voting rights whilst you own BNRE.A. You can convert from BRNE.A (class A1) to BRNE (class A) which has voting rights but I didn’t confirm those rights are equal to the BN rights. But either way even this is mitigated in the following way - hold just one share of BN, so you are kept in the loop with voted policies, and then if there is something that you feel passionate about and you hold hundreds of millions of dollars of equity in the firm, then you can swap your BNRE.A with BN just at that time to to cast your vote. No problems.
- Manlobbi
