Westpac ups hybrid offering after strong demand
After last week saying it expected to raise $500 million in a hybrid issue, Westpac said on Wednesday that it had increased the size of the deal to $1.25 billion, due to a wave of interest.
"The offer has received very strong demand from retail clients," the bank said.
The deal comes after a flurry of hybrid issues last year, through which big companies raised some $7 billion.
Hybrid shares pay a set interest rate, which usually tracks the price of debt, and after a set period convert into ordinary shares.
Given they have bond-like features, paying a predictable yield, this makes them attractive to retail investors in times of choppy markets.
However, the strong interest in Westpac's offering highlights that hybrids remain attractive to small investors in a rising market, too.
The notes will provide investors with a quarterly distribution rate calculated as the 90-day Bank Bill Rate plus a fixed margin. Westpac said the margin would be 3.2 per cent - at the lower end of its initial guidance.
While investors have embraced hybrids as a solid source of income during a time of market volatility, the corporate regulator has warned people that the products are often complex and riskier than corporate bonds.
As well, the regulator has stressed that hybrids are subordinated to other forms of debt and are unsecured, which means investors in these products are at the back of the queue if the issuing company fails.
The Westpac notes, which will convert to equity within eight years, qualify as tier one capital under the new banking rules known as Basel III. Westpac has $1.04 billion of hybrid notes due to be redeemed in September this year and $910 million of hybrid notes due to be redeemed in September 2014.
Frequently Asked Questions about this Article…
Westpac originally expected to raise $500 million in its latest hybrid issue but increased the deal to $1.25 billion after strong demand from retail and small investors rushed the offer.
The article says the offer received very strong demand from retail clients, reflecting ongoing retail investor appetite for hybrid securities despite a powerful market rally.
Hybrid shares (or notes) pay a set interest rate that typically tracks the price of debt and, after a set period, convert into ordinary shares. They have bond-like features that give predictable yield while ultimately converting to equity.
Westpac's notes will pay a quarterly distribution calculated as the 90-day Bank Bill Rate plus a fixed margin. Westpac said the fixed margin would be 3.2 per cent, which was at the lower end of its initial guidance.
Because hybrids have bond-like features and pay a predictable yield, retail investors find them attractive as a source of income in choppy markets — and the strong interest in Westpac's deal shows they remain appealing even in a rising market.
The corporate regulator has warned that hybrids are often complex and riskier than corporate bonds. They are subordinated to other debt and unsecured, meaning investors are behind other creditors if the issuing company fails.
Westpac's notes will convert to equity within eight years and qualify as tier one capital under the Basel III banking rules, helping meet new regulatory capital requirements.
Yes. According to the article, Westpac had $1.04 billion of hybrid notes due to be redeemed in September this year and $910 million due to be redeemed in September 2014.
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