ANZ Capital Notes 2: Here we go again

ANZ Capital Notes 2 are like previous offers, and all the worse for it, explains Richard Livingston.

Key Points

  • ANZ Capital Notes 2 are a replica of ANZ Capital Notes and Westpac Capital Notes
  • Higher ANZ ordinary share price means they’re a bit riskier
  • Older hybrids are generally better than new                      

ANZ needs to replace an old hybrid issue (ANZ CPS 1), so they’re back at the trough with Maximum Conversion Number (MCN) calculation similar to ANZ Capital Notes 2. But it’s MCN was calculated based on a share price that’s a third lower than it is today (see Table 2). This means CBA’s share price needs to fall further than ANZ’s before hybrid investors would suffer a capital loss on a forced early conversion or get stuck holding the hybrid at 'maturity'.

  Ordinary share price at hybrid issue date (1) Current ordinary share price (2) Percentage above/below issue date share price
Table 2: Ordinary share prices at time of issue of convertible hybrids (vs current share prices)
ANZ CPS2  17.35  31.80 83.3%
ANZ CPS3  19.53  31.80 62.8%
ANZ Capital Notes  29.16  31.80 9.1%
ANZ Capital Notes 2 (3)  31.80  31.80 0.0%
Westpac CPS  20.83  33.17 59.2%
Westpac Capital Notes  29.89  33.17 11.0%
CBA PERLS VI  56.08  75.00 33.7%
NAB CPS  30.64  35.24 15.0%
NAB CPS 2  33.86  35.24 4.1%
       
Notes:      
(1) Issue date share price is VWAP (volume weighted average price) during period immediately preceding issue date.
(2) Closing share price as of 19 Feb.
(3) Assuming VWAP during period prior to issue date equals today's share price.

Where does that leave us? From an investor’s perspective, there’s really no point in getting involved in ANZ Capital Notes 2. If you’ve got cash you can buy any one of the hybrids listed in Table 2 (or any of the other hybrids listed on the ASX). Even if you’re an investor in ANZ CPS1, in which case you’ve been offered the opportunity to sell and reinvest in ANZ Capital Notes 2, you can sell them through your share trading account, or wait for them to be repurchased, and buy something else.

Verdict

We’ll stick with our sensibly diversified Conservative Portfolio. We reckon we’ll do better in the long run than investing in a bunch of hybrids. But if you are going to dabble, go with the older versions and avoid this latest offer.

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