The Commonwealth Bank is marketing a new $750 million, ASX-listed tier one, or hybrid, security that will pay investors an interest rate of about 7 per cent based on prevailing short-term bank rates.
The securities offer, titled PERLS XVI, is rare in that it is a new issue rather than a refinancing of an existing security. It is the second ASX-listed hybrid issue by a major Australian bank this year, after ANZ raised $1 billion from investors in February.
But it is the first by a major bank since global fixed income markets were rocked by the decision of Swiss regulators in March to wipe out the value of Credit Suisse’s tier one hybrid.
That decision unnerved investors about the risks of tier one securities, which can be converted to equities or written off in extreme events.
But income-seeking investors in Australian bank hybrids have shrugged off the incident and recent weakness in bank shares, as secondary market prices have held up relatively strongly recentl
The CBA issue is expected to raise about $750 million and is being marketed at a margin of between 3 and 3.1 percentage points over the bank rate, but traders expect the transaction to attract healthy demand and be increased to $1 billion.
A margin of 3 per cent above the bank rate is in line with secondary market pricing, but higher than the 2.75 per cent paid by ANZ when it raised hybrid capital via the ASX.
Based on the 3.89 per cent bank bill rate setting, the securities will pay an annual rate of between 6.9 per cent and 7.1 per cent, with distributions expected to be fully franked.
The margin also compares to a recent higher ranking tier two bond issued by ANZ last week, which paid wholesale investors a margin of 2.35 per cent over the bank rate.
In June 2030, the bank can elect to repay the securities. CBA is arranging the transaction and appointed ANZ, Bell Potter, Morgan Stanley, Morgans, National Australia Bank, Ord Minnett, Shaw, UBS and Westpac as lead managers on the sale.
Under new regulatory marketing restrictions, the securities can only be sold to an eligible client of a brokerage firm that has been appointed to syndicate the offer.
Credit rating agency S&P Global assigned a BBB- rating to the securities to reflect the subordinated status of the security.