National Australia Bank (NAB) is planning to launch a $500 million hybrid offer, in a push to shore up tier one capital before Basel III is rolled out, sources close to the transaction said.
It is understood the deal – which NAB is open to upsizing – is set to be launched on Monday. The seven-year, non-callable convertible securities will be priced at 325 basis points over the bank bill rate.
Under the new Basel banking rules, these hybrid securities are considered tier one bank capital.
NAB will run the book. The move is the cheapest way to raise tier one capital to get in line with APRA and Basel III rules, which will enforce higher capital ratios. Heading overseas for funds is also an option, but if NAB had opted for that avenue it would have cost one to 2% more.
A spokeswoman for NAB declined to comment.
Australia’s Big Four banks all need to boost their tier one capital levels to meet Basel III, which rolls out its first phase in 2015 and requires lenders to set more capital aside as a buffer against another financial crisis.
The hybrid offer would be NAB’s second this year. In February, the bank raised $1.4 billion via a tier one retail offer of convertible preference shares, increased from an initial offer of $750 million.
Also in February, Westpac (WBC) more than doubled an offer of hybrid securities to $1.25 billion due to high demand from retail investors.