MARKETS SPECTATOR: Origin's hybrid halving

Origin’s hybrid notes will retain 50 per cent equity content in the wake of S&P's change, while Cochlear is on the nose and ASX is impressing.

Origin Energy says Standard and Poor’s has given its approval to attach a 50 per cent equity content value to its hybrid notes after S&P earlier today said the hybrid securities will “no longer qualify for 100 per cent equity content”.

The country’s biggest electricity retailer says it “will not exercise its rights to redeem” the securities: $900 million subordinated notes issued in 2011 and €500 million capital securities issued in 2012.

“Origin continues to have other rights to redeem the subordinated notes and capital securities at a future date,” the company says in an email to Markets Spectator.

Both securities, due 2071, attracted voracious retail demand. Viewed as a 'cheap form of equity' by companies, S&P’s retrospective changing of the rules on the equity content of the hybrids may reduce their corporate appeal.

Other companies that have issued high equity content hybrids include: AGL Energy’s, $650 million of subordinated notes due 2039, Contact Energy’s $NZ200 million capital bonds due 2042, Genesis Power’s $NZ275 million capital bonds due 2041, Santos’ €1 billion subordinated notes due 2070 and Tabcorp’s $250 million subordinated notes due 2037.

Origin says S&P has told the company that its long-term, senior, unsecured credit rating of BBB will not change following the change to the equity content of the hybrid securities. 

Elsewhere on the markets, Citigroup doesn’t like Cochlear’s stock.

The hearing implant developer is trading at a price earnings of 25-times for its “minimal” earnings per share growth this year and next faces renewed competitive threats, says Citi.

French hearing aid developer William Demant Holding has purchased French cochlear implant maker Neurelec for €58 million euro. Citigroup believes William Demant can make Neurelec into a 'formidable competitor' to Cochlear.

“This coupled with a renewed Sonova, (another Cochlear competitor), will make Cochlear’s dominant market share harder to sustain,” Citigroup says.

Cochlear’s shares today fell $1.03 to $65 as of 3:42pm. 

Meanwhile, Morgan Stanley is “bullish” on Australia’s dominant exchange.

In March, ASX had an “all time record” for futures trading and recorded its second-highest number for cash trades, says the broker.

Morgan Stanely says ASX is a buy because:

1) It has an "attractive" dividend yield';

2) Activity trends "seem to be improving";

3) The threat of competition has receded;

4) It sees scope for further price-earnings re-rating

5) "A pristine balance sheet" offers flexibility, and;

6) Takeover hurdles "continue to come down".

ASX shares rose 15 cents today to $36.34 at 3:57 pm.

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