Note key risks in perpetual securities, MAS cautions

[mysterion]

If cost of equity for an issuer (e.g. GIL) - as demanded by the stock market including by smart/informed sophisticated investors - is say about or more like at least 12%p.a., then by rational thinking, shouldn't the cost or yield of a perpetual senior debt be close to 10%p.a.? Are investors getting that?

Perhaps the intelligent investor should look into the area of "perpetual securities" as special situations when fixed-income instruments go out of favor. Some examples would be when interest rates rise substantially or when the issuer goes into temporary financial difficulties (and hence, deferring coupon payouts). As a result, the price of such perpetual securities would drop significantly in the secondary market, causing its interest yield to increase substantially (plus with a much greater potential for capital appreciation).

Wouldn't this create a margin of safety and make such investments much more attractive? Of course, this depends on the specific situation and would require the investor to put in effort to research the business fundamentals.