In the benign economic climate, the technical environment (the forces of demand and supply) continue to dictate valuations in the ASX-listed Debt & Hybrid Market. While trading margins have enjoyed an 18-month tightening cycle on the back of resilient demand, the momentum has undoubtedly slowed in recent months, with minimal net margin gains since January. Figure 1. Average Additional Tier [...]
In Australia’s low-yield environment, higher-risk income securities (i.e. hybrids) tend to be more favoured for their attractive returns. However, the yield of a hybrid varies based on many factors. Perhaps most important are the assumptions of when the security will be redeemed or converted. Conventionally, hybrid securities are either called on their first call date (or each interest payment thereafter) [...]
A few weeks ago, ANZ caught investors by surprise by announcing a potential on-market buy-back offer for its $1.3 billion of its Convertible Preference Shares (CPS3, ASX code: ANZPC), issued in September 2011. As per the original terms and conditions, ANZ has a right to redeem (formally “exchange”) the CPS3 on 1 September 2017 but ANZ will not be exercising this [...]
For retail investors, the opportunity set for listed income securities outside the Bank Additional Tier 1 (AT1) hybrid universe has been contracting for some time now. This has been most prominent for listed corporate securities in which issuance has dwindled since Standard & Poor’s adjusted its ‘equity credit’ criteria in 2013. Under this criteria, corporate hybrid securities were originally classified [...]
For investors of Australian shares, dividends paid to them by Australian resident companies are taxed under a system known as 'imputation'. It is called an imputation system because the tax paid by a company may be imputed or attributed to the shareholders. The tax paid by the company is allocated to shareholders by way of franking credits attached to the dividends [...]
As a rule of thumb, we consider Major Bank Tier 2 securities as one of the best risk-adjusted capital investment for investors due to their superior capital structure ranking, non-discretionary interest payments and event of default terminology. Historically, while the retail (listed) Tier 2 market increased post-GFC, there was uncertainty among investors in the wholesale (over-the-counter) market regarding the premium associated [...]
In July 2016, a stress-test conducted by the European Central Bank (ECB) highlighted the “alarming levels of debt” carried by some of Europe’s biggest lenders. Among a few others, Spanish Bank Banco Popular was expected to fall short of capital requirements in a stressed scenario. Reason for failure The bank’s inherent weakness was emphasized when it posted a €3.5 billion [...]
During the Global Financial Crisis (GFC), bank consolidation was a major action undertaken to ensure global financial stability. In Australia, key transactions included Commonwealth Banks takeover of BankWest and the merger of Bendigo Bank and Adelaide Bank. Since then, market concentration in the Australian banking system has lessened competition among participants (Figure 1). Figure 1. Relative size of Australian banking [...]
When investing in the ASX-Listed Debt & Hybrid market, an important consideration is liquidity. Given the market’s size of ~$60 billion, liquidity can be limited and if a major announcement occurs it may be difficult to get in or out of positions. For this reason, investors may have to accept a lower price to sell or pay a higher price [...]
In recent years, non-financial corporate security issuance into the ASX-Listed Debt & Hybrid market has dwindled. There has been a number of factors but a standout contributor has been the change to credit rating methodology known as ‘equity-credit’ where hybrid securities are classified as equity (instead of debt) from a credit rating perspective. This maintains the underlying issuer’s credit metrics when [...]
An employee-owned financial services provider focused on the Debt Capital Markets.
An employee-owned financial services provider focused on the Debt Capital Markets.
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ABN 31 164 148 467 ‧ Important Information
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
