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Intelligent Investor
Intelligent Investor

Suncorp Sub Notes: one for the contortionists

Suncorp's latest hybrid has an odd mix of debt and equity features. We explain why only financial contortionists need apply.
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By Richard Livingston · 19 Apr 2013
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Richard Livingston
By Richard Livingston ·
19 Apr 2013
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Key Points

  • Similar to earlier subordinated notes
  • Catch is that this version comes with an added risk
  • Better options out there already

Suncorp CPS2, reviewed in Maximum Conversion Number).

Table 1: Comparison of bank subordinated note offers
  Suncorp Sub Notes (SUNPD) ANZ Sub Notes (ANZHA) NAB Sub Notes (NABHB) Westpac Sub Notes (WBCHA)
Price ($) (@17 Apr) 100 103.75 103.52 104.02
Official ranking  Unsecured, subordinated Unsecured, subordinated Unsecured, subordinated Unsecured, subordinated
Risk characteristics Debt-like, but convertible Debt-like Debt-like Debt-like
Distribution rate 3mth BBR 2.85% 3mth BBR 2.75% 3mth BBR 2.75% 3m BBR 2.75%
Distribution type Cash Cash Cash Cash
Compulsory distributions Yes - subject to solvency Yes - subject to solvency Yes - subject to solvency Yes - subject to solvency
Principal repayment Cash - unless non viability trigger event Cash Cash Cash
Maturity date 22/11/23 14/06/22 18/06/22 23/08/22
Early redemption date 22/11/18 14/06/17 18/06/17 23/08/17
Non-viability trigger event? Yes No No No
YTM (on current price) 3mth BBR 2.85% 3mth BBR 1.9% 3mth BBR 1.9% 3m BBR 1.9%

In yield to maturity, and this riskier Suncorp offer paying 5.8% coupons, it’s worth highlighting that you aren’t getting much extra return compared to the best five-year term deposit rate of 5% (RaboDirect). Admittedly, it’s not an apples and apples comparison, as the hybrids are floating rate and, as interest rates rise (and fall), so will their distributions. But we’d suggest that hybrid investors are more worried about falling, not rising, interest rates.

Final call

Suncorp Sub Notes don’t satisfy any pressing need and add a dose of worry that’s tough to assess. There’s enough options out there – term deposits, sub notes and convertible hybrids – for investors to satisfy their safety or return requirements without needing to contort themselves to make this one fit.

IMPORTANT: Intelligent Investor is published by InvestSMART Financial Services Pty Limited AFSL 226435 (Licensee). Information is general financial product advice. You should consider your own personal objectives, financial situation and needs before making any investment decision and review the Product Disclosure Statement. InvestSMART Funds Management Limited (RE) is the responsible entity of various managed investment schemes and is a related party of the Licensee. The RE may own, buy or sell the shares suggested in this article simultaneous with, or following the release of this article. Any such transaction could affect the price of the share. All indications of performance returns are historical and cannot be relied upon as an indicator for future performance.
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Richard Livingston
Richard Livingston
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