With preference shares the stock is only callable under certain circumstances, one being if the amount of outstanding shares goes below a certain level (preference shares are sometimes given the optuon to convert into ordinary shares). Unless, I suppose the call option is incorporated in the prospectus.
It is strange that so called redeemable preference shares aren't really redeemable!
just the facts has a good answer (Ray's is typically confused).
For example, when the company issued the preferred stock at 100 it promised to pay a 9% dividend but the agreement included a provision that it could "call" the stock at 100 say anytime after 5 years from issuance. The risk with preferred stock is that the company won't have enough cash to pay the dividend (when the preferred gets smashed) so people require big dividends to buy the preferred. Then good things happen and the company grows and gets more reliable cash flow and could issue preferred at 5%. It makes sense for the company to call the preferred stock.
As JTFM points out, there are other possible reasons for calling preferred stock including changing the capital structure or forcing people to convert convertible preferred stock.
Callable means that the company can force the preferred shareholders to either redeem or convert their shares. They might do it because the dividend rate is high, they want to simplify the capital structure, or some such reason. It's usually callable at a set price, like par plus all accrued and unpaid dividends
Hi I have a final on Sunday and I have a few questions.
What does it mean when a corporation "calls in" an earlier preferred stock? And in case of that it says here that the "corporation can exercise a call provision because all preferred stock is callable"?
Does it mean that the corporation buys back their stocks because the interest rate is so low that its price is close to its face value or am I wrong?
Thank you
