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Greetings, folks,

Recently I've become very interested in ING Groep's perpetual debt securities, in particular ISP.

The strike price is $25 / share, redeemable at that price + any accrued dividends at ING's option after 1/15/2009.

In the meantime, with an issue yield of 6.2%, as of right now it's trading at $24.25 / share and an effective yield of aroun 6.4%. Further, QuantumOnline lists it as one of the issues qualifying for the 15% dividend tax rate.

So, here's my (brief) analysis, modulo ING's financial health and all the usual risks.

Right now the after-tax yield is around 5.5% per year ... plus about an extra 0.6% (again net after the 15%, annualized) from the presumed capital gains if ING indeed cashes out the shares in Jan '09. That's not too bad of a rate. As interest rates rise, I expect - for the next few years, anyway - the shares to continue to trade at a discount to the strike price.

If, by '09, interest rates are lower than they are now, ING will cash out the shares to refinance at a lower rate. If the rates are higher than they are now, I expect there will still be a discount to the strike price.

Either way, in '09 ING won't cash the shares out unless they have no better use for the cash, or they can refinance at a lower rate.

So, in the interim, I see the opportunity for a halfway decent rate-of-return, not too much per-share risk (if held to cash-out, much like a bond), and the ability to buy shares at a fraction on the dollar.

Thoughts / comments?


- Lewellen180

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