THIS year's powerful market rally has done little to dampen retail investor demand for hybrid securities, with Westpac more than doubling the size of its latest issue after being rushed by strong interest from small investors.
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.