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Borrowing 100% to invest in shares via a protected loan is an increasingly popular way for you to gain access to the potential upside of shares, with the security of loan protection.
Through investing in an MQ LPL, you may also potentially benefit from tax deductions associated with the loan’s funding cost
1.
How is an MQ LPL different?
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MQ LPLs are traded on the ASX, so you can buy and sell them just like shares. |
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You can choose to "walk away" on any anniversary date.
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Simple application process. |
At a Glance
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Investment Name |
MQ Listed Protected Loan ("LPL") |
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Issuer |
Macquarie Bank Limited |
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Minimum Loan |
$50,000 (or $5,000 per MQ LPL as part of a portfolio totalling $50,000 or more) |
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Term |
Three or five years |
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Loan Protection |
100% loan protection |
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Finance |
100% borrowing if purchased through the PDS |
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Liquidity |
Traded on the ASX 2 |
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Standard Adviser Commissions |
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Upfront commission 1.65% for three year and 2.20% for five year (each inc GST)
- Trail fee 0.55%pa (inc GST) |
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Offer Period 1 |
02 June 2008 to 30 June 2008; trading begins
09 July 2008 |
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Offer Period 2 |
2 June 2008 to 30 June 2008; trading begins 9 July 2008 |
How Does MQ LPL Work?
The MQ Listed Protected Loan ("LPL") is an innovative new investment product that combines the traditional elements of a protected loan with a unique "walk away" feature and the liquidity of ASX trading. Investors receive all the benefits of traditional protected loans - borrowing to invest in a wide selection of shares with a fully protected loan; receiving any ordinary dividends and franking credits
3, and receiving any share price growth at maturity.
However, MQ LPLs also offer features that no other protected loans offer, including:
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Traded on the ASX |
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Annual "walk away" feature |
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Simple application process |
Key Product Features
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Traded on the ASX - daily pricing and liquidity |
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Ability to "walk away" on any anniversary date |
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Simple application process |
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100% finance, if purchased through the PDS |
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100% loan protection |
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Receive 100% of any capital growth in the shares |
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A wide selection of Australian stocks |
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No margin calls |
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The interest that you pre-pay on your 100% loan is potentially tax deductible in the current financial year
4 |
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Competitive rates fixed for the term 5 |
Case Study
The following is an example of hypothetical 100% geared MQ LPLs over WOW and TLS shares. This is not personal advice and should not be regarded as a recommendation to invest in any particular series.
John has seen the share price of WOW and TLS fall significantly, and thinks that both of these stocks offer good value at current levels. John wants to buy these shares, but wants principal protection in case they underperform.
He wants to take out a protected loan to purchase these shares, and will pre-pay interest on the loan prior to June 30.
Outcome
On June 30, John applies for two series of five year MQ LPLs over WOW and TLS with a total loan amount of $200,000. Based on $100,000 exposure to both WOW and TLS, John is issued with 4,000 WOW MQ LPLs and 25,000 TLS MQ LPLs.
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WOW |
TLS |
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Share Price
6 |
Loan Amount per MQ LPL |
First Interest Payment per MQ LPL |
Annual Interest Payments |
Share Price
6 |
Loan Amount per MQ LPL |
First Interest Payment per MQ LPL |
Annual Interest Payments |
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$25.00 |
$25.00 |
$3.6025 |
$3.6025 |
$4.00 |
$4.00 |
$0.59 |
$0.59 |
John pre-pays interest of $14,410 and $14,750 respectively for WOW and TLS. Further annual interest pre-payments will be of the same amount, as all interest rates are fixed for the term
7.
Alternatively, he may choose to simply "walk away" from the investment on any anniversary date.
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Loan Amount: |
$200,000 |
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Interest Rate: |
Fixed |
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Term: |
Five years |
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Issue Date: |
30 June 2008 |
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Maturity Date: |
30 June 2013 |
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WOW |
TLS |
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Year |
Annual Interest Date |
MQ LPL Interest Rate |
MQ LPL Payment |
MQ LPL Interest Rate |
MQ LPL Payment |
Total Payment |
Potential Annual Interest Deduction |
Additional
Costs be
Added to
Cost Base |
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1-5 |
30 June |
14.41% pa |
$14,410 |
14.75% pa |
$14,750 |
$29,160 |
$28,300 |
$860 |
John is potentially eligible for the above interest deductions in this current financial year.
The "Walk Away" Option
On each anniversary date, John can choose to "walk away" from any series of MQ LPLs, allowing him to let go of a series that has underperformed, and continue to hold any other series that have seen better performance. The following is an example of how this works.
After one year, on 30 June 2009, WOW shares are trading at $22.00 (original loan/share price $25.00)
6. John does not want to make any further interest payments, and elects to “walk away” from his 4,000 WOW MQ LPLs. He will not have to make any further payments, as Macquarie will sell the shares and use the proceeds to repay the loan amount, which includes all future prepayments of interest. Any shortfall will be covered by Macquarie and all remaining proceeds will be paid to you.
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Date |
WOW Price |
Loan Amount per MQ LPL |
Annual Interest Amount |
John Pays |
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30 June 2009 |
$22.00 |
$25.00 |
$3.60 |
$0.00
8 |
Options at Maturity
At maturity on 30 June 2013, if John has not sold, or "walked away" from his MQ LPLs during the term, he can either:
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Pay out his $200,000 loan and receive the underlying WOW and TLS shares; |
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Do nothing, and receive the value of his shares less his outstanding loan in cash; or
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Sell his MQ LPLs on the ASX. |
1 Up to the RBA Personal Unsecured Rate (currently at 14.15%pa). Taxation outcomes depend on the individual's circumstances and the pre-payment rules. Investors should seek their own taxation advice before investing.
2
Please note that ASX listing and liquidity is
contingent on listing approval being granted by the
ASX.
3 Subject to eligibility.
4 Up to the RBA Personal Unsecured Rate, currently at 14.15%pa. Taxation outcomes depend on the individual's circumstances and the prepayment rules. Investors should seek their own taxation advice before investing.
5
Subject to adjustment for corporate actions - see PDS for details.
6 Please note: current series are expected to use the average closing price over a 3-day period rather than a simple market price – see PDS for details.
7 Subject to adjustment for corporate actions – see PDS for details.
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The amount receivable by you if you walk away from an MQ LPL is equal to the greater of: (a) the stock value, less the loan amount, less any future interest amounts; and (b) zero.
MQ Listed Protected Loans ("MQ LPLs") are offered by Macquarie Bank Limited ABN 46 008 583 542 ("Macquarie"). Before making any decision to acquire, or continue to hold, a series of MQ LPLs, you should read and consider a copy of the relevant supplementary product disclosure statement and the master product disclosure statement (together, "PDS"), which are available here. In this webpage, Macquarie has not taken into account what you currently have or what you want or need for your financial future. We recommend you obtain financial, legal and taxation advice before making any investment decision.
Nothing in this webpage is an express or implied endorsement or recommendation by Macquarie of an investment in any ASX-listed entity.
Macquarie does not provide tax advice. How tax laws apply to you depends on your personal circumstances. You should seek your own independent tax advice before making any investment decision.
Macquarie may receive remuneration from the issue of MQ LPLs and may pay your adviser a commission in connection with your investment in MQ LPLs. You should refer to the PDS for further information about such remuneration and commissions. Macquarie or its affiliates may hold positions or interests in any financial instruments mentioned.
Information is current as at 16 April 2008 and subject to change without notice. |
