Macquarie to test $500m hybrid

MACQUARIE Group has joined the rush of hybrid share raisings, with the investment bank saying it would tap investors for $US500 million.

By InvestSMART · 7 Mar 2012

By InvestSMART ·
7 Mar 2012

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MACQUARIE Group has joined the rush of hybrid share raisings, with the investment bank saying it would tap investors for $US500 million.

Macquarie was testing support through its London branch to offer a US-dollar tier 1 hybrid security to institutional investors. The bank said the intended size of the offer is up to $US500 million.

The move adds to the $4.4 billion worth of hybrid security issues launched by local companies within the space of just three weeks. The issues are aimed at tapping the strong demand for fixed income-type investments among retail investors, especially those with self-managed superannuation funds.

Last week, AGL Energy launched a $A650 million subordinated note issue.

The Macquarie hybrid, if issued, will be unsecured, subordinated notes of Macquarie's banking unit and exchangeable for Macquarie Group shares in certain circumstances. Unlike other recent issues, they will only be sold to institutional investors. The offer is subject to market conditions, Macquarie said.

The focus on hybrids comes as the Australian Securities and Investments Commission plans to meet finance representatives to remind them they need to highlight the investment risks. The regulator has raised concerns over the aggressive retail marketing of the instruments.

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Frequently Asked Questions about this Article…

What is the Macquarie hybrid being tested and how large is the offer?

Macquarie Group said it would test investor support through its London branch for a US-dollar tier 1 hybrid security with an intended size of up to US$500 million, subject to market conditions.

Who can buy the Macquarie hybrid — retail investors or institutions?

Unlike some recent hybrid issues, Macquarie’s proposed hybrid would be sold only to institutional investors, not to retail investors.

What type of security is the proposed Macquarie hybrid?

If issued, the Macquarie hybrid would be unsecured, subordinated notes of Macquarie’s banking unit and could be exchangeable for Macquarie Group shares in certain circumstances.

How does the Macquarie offer fit into recent hybrid security issuance activity?

Macquarie’s planned issue adds to about A$4.4 billion of hybrid security issues launched by local companies in roughly three weeks, reflecting a busy period in hybrid issuance.

Why are companies launching hybrid and subordinated note issues now?

The recent wave of hybrid and subordinated note issues is aimed at tapping strong demand for fixed-income–type investments among retail investors, particularly those managing self-managed super funds (SMSFs).

What are the regulatory concerns around hybrids and investor marketing?

The Australian Securities and Investments Commission (ASIC) has raised concerns about aggressive retail marketing of hybrids and plans to meet finance representatives to remind them they need to highlight the investment risks to clients.

Are there special risks I should know about with these hybrid securities?

The article notes that Macquarie’s hybrid would be unsecured and subordinated and may be exchangeable for shares, and that ASIC is warning about investment risks — all of which suggest investors should be aware of higher complexity and potential risk compared with simple fixed-income products.

How does the Macquarie hybrid compare with recent issues like AGL Energy’s offering?

A recent comparable move was AGL Energy’s launch of a A$650 million subordinated note issue; Macquarie’s planned hybrid is part of the same trend but is being offered in US dollars and only to institutional investors.