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Bendigo and Adelaide Bank launches A$75 million hybrid |
Bendigo and Adelaide Bank (BBB+/A2) (Bendigo-Adelaide) lodged a prospectus for a new convertible preference share (CPS) offer on October 29, with the deal’s managers confident that its headline yield will attract retail investors despite the ongoing vogue for government-guaranteed bank deposits.
The fixed-rate Bendigo-Adelaide hybrid – which has been rated BBB- by Standard & Poor’s and Baa1 by Moody’s Investor Services – has a margin range of 450-500 basis points above five-year swap and an indicative size of A$75 million (US$48.04 million), although the issuer is allowing room to up- or downsize. Lead managers are ABN AMRO, Deutsche Bank and Goldman Sachs JBWere.
The recent Australian government deposit guarantee has cast some doubt on the prospects for alternative forms of retail investment, and with hybrids traditionally attracting a predominantly retail investor base suspicions have been voiced that buyers may reject CPS transactions in favour of guaranteed bank deposits.
Rupert Daly, Sydney-based head of hybrid capital at Deutsche Bank, acknowledges there will be challenges in marketing a hybrid in competition with the attractions of guaranteed term deposits, but adds that the introduction of the guarantee scheme has also brought sufficient stability to once again make hybrids an attractive investment option.
Daly also notes the prospect of a healthy yield pickup in an environment where cash rates are expected to fall further. He says: “The rationale for issuing a fixed rate deal was that the swap rate – which is running at about 5.6 per cent – has already factored in most of the anticipated rate cut. Assuming an unchanged swap rate the deal could price at the low end of its indicative range and still achieve a headline rate of 10 per cent or more, which should look very attractive for the next five years.”
And another hybrid banker – not connected with the latest deal – agrees that the guarantee scheme will help more than it will hinder: “I suspect this deal will go very well as the combination of a fixed rate, offering an attractive yield, and the momentum the guarantee has brought by restoring some confidence in the banks will give it good appeal.”
According to the banker, while hybrids are not themselves guaranteed the existence of the guarantee scheme will reassure investors that banks are unlikely to fail, reawakening interest in hybrid securities which will inevitably offer a substantial yield pickup.
From the issuer’s perspective, Bendigo-Adelaide chairman Robert Johanson says the issue is being made “to replace maturing subordinated debt and to strengthen our balance sheet”. He adds: “The existence of a strong pool of permanent capital has been one of the cornerstones of the bank’s prosperity…and these new securities will further strengthen that base capital, allowing us to continue to grow.”
Although the bank did not immediately return a request for comment it is understood Bendigo-Adelaide has experienced significant deposit inflows in the wake of the guarantee scheme’s announcement, with several market sources telling KangaNews the bank has actually cut its deposit rate in the wake of those flows. The targeted A$75 million of new CPS would increase Bendigo-Adelaide’s tier one capital position from 7.5 per cent to 7.9 per cent.
The deal’s margin will be announced on November 6, with the final offer period closing on December 9 and issue the day after. Trading in the new securities on the Australian Securities Exchange will commence on December 16 with mandatory conversion on the same date in 2013.
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Last Updated ( Wednesday, 29 October 2008 )
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