Polliesdividend

Recent buy – Rabobank Certificates

About two weeks ago I read about the offering of new Rabobank Certificates. These certificates, with a nominal value of €25, are perpetual and have no fixed maturity date. These certificates are part of the Common Equity Tier 1-capital (CET1-Capital) of the Rabobank. I know the Rabobank very well. It is my bank and a very solid bank. It has been the only private AAA-bank in The Netherlands. This rating has changed due to the new regulations.

 

 

These certificates are a special kind of bonds that pay a set interest each quarter. The height of the interest depends on the 10-year interest rate of the Dutch government plus 1.5 percent. A minimum interest rate is set for these certificates of 5.2 percent. At the time of the offering the percentage will be around 6.5%. All these percentages are base on the nominal value.

 

Risks

Because these certificates are part of CET1-Capital, the certificate holders will be last in line when a bankruptcy will occur. They can even lose all of their invested money. This is one of the risks belonging to these certificates. If we take a look at the rating of the Rabobank (see table below) we can see that it is a very solid bank.

 

Moody’s

Aa2

S&P Global

A+

Fitch

AA-

DBRS

AA

Another risk is that board of directors can decide to suspend any payments at its own discretion. The third risk is that the Rabobank can lower the interest rate, which is paid on these bonds. And last but not least the Rabobank can decide to buy back these certificates.

Most of these certificates are bought by members of the cooperation (The Rabobank is a cooperation), and therefore the general opinion is that these risks are not that high.

All in all I’m willing to take these risks because the height of the interest rate of these certificates. Furthermore to reduce my risk, I only bought less than 2% of portfolio value.

 

Vrijheid Fonds

Last week I bought 55 Rabobank Certificates for an offering price of 108%. This means I paid €27 for each certificate. After the offering I was able to calculate my interest on these certificates. As already mentioned the nominal value is €25 (this equals 100%). I bought 25 of these certificates for the offering price of 108%. This means that I paid €27 euro per certificates. So with a 6.5% rate on the nominal value, this means that I will get approx. 6.018% on my certificates.

With this buy, I added a little bit more than €89 of passive income to my Vrijheid Fonds for this year. The interest will be paid on 29 March, 29 June, 29 September and 29 December in each year

Again a small step in my journey towards financial freedom. And one-step closer to my goal.

Have any of my Dutch friends and fellow DGIs bought these certificates? Any feedback is greatly appreciated!

Cheers,

Pollie

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8 thoughts on “Recent buy – Rabobank Certificates

  1. Sluis

    Another Dutch investor here. I looked at the offering but I do not understand the concept for 100%. Your blog is helpfull but I hope you van answer Some questions.

    If the Rabobank decides to buy back the certificates will they then buy for the current market price? Is the minimum rate always 5.2% despite the purchase value of the certificate? Will the interest be paid in cash in your brokerage account? And is there a website of information about previous offerings, in other words is there some kind of history on how long these certificates are running?

    Looking forward to your answers. Thank you in advance!

    1. Jos

      Hello Sluis,
      It is my understanding that Rabobank can buy back the certificates at 100%. 100% = €25. If for some reason marketprices will drop below 100% Rabobank is better of buying the certificates on the open market.

      Currently prices are 111,3% (ie €27,825) + plus days of interest from the last payout date.

    2. Pollie Post author

      Hello Sluis,

      Jos is correct. The Rabobank can buy back the certificates at 100%. However the change that the Rabobank will buy back the certificates is in my opinion low. It is a risk i’m willing to take 😉 Furthermore the Rabobank needs this money for their CET-1. The interest will be paid in cash at the end of every quarter.

      You can find more info at: https://www.rabobank.nl/particulieren/beleggen/beleggingsvormen/waarin-zelf-beleggen/rabobank-certificaten/

  2. Team CF

    We don’t hold any bonds, and are currently not planning to add any either. Yield is pretty good, as you showed, but this is unlikely to be affected positively (higher interest), only negatively (lower interest of buy-back). In my book, this is more stable than crowdfunding, but has the same upper level limit.
    Still some diversification in investments is almost always a good thing, and a solid institution as the Rabo is probably safer than most crowdfuding projects. That being said, investments should be for the longer term, and in that case shares have our preferences due to the large upward potential.

  3. DividendIncomeBuilder

    Hi Pollie,
    Very interesting post. I am not sure but I think you can only buy these securities with a Rabo bank account, right? That would make me very skeptical when the butcher advises you to eat more of his meat. Also, is there actually an active market in these things ie can you see historic transaction volume on any platform? This is of course less of an issue if you intend to hold them for the long run. But it would be comforting to know that the market price is determined by actual supply and demand as opposed to Rabo setting an issue price.
    Personally, I rather stick to diversified ETFs but I hope that these certificates work well for you.
    Regards,
    – DIB

    1. Pollie Post author

      Hi DIB,

      These certificates can be bought by all brokers. Not only at the Rabobank. And the are traded daily at the Amsterdam Stock Exchange.
      Cheers,

      Pollie

  4. Pursuit2Freedom

    The idea is nice, but still, I’m not sure I like it. I don’t see much upward potential for the value. Especially not if the Rabobank can buy them back at 25. Also, you won’t get an increase in rent every year, unlike most good dividend stocks.

    For the shorter term this could be great. Also, if I’m retired already, but since I still have 25 years to go I don’t think this is a nice product for me.

    Still, I understand why you bought them and I think it could be great for diversification.

    1. Pollie Post author

      Everybody needs to make its own decisions.
      I know they won’t grow in price. Thats not why I bought them. It is because of diversification!

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