Over the first half of 2016 the four major Australian banks have issued ~A$4.65 billion of domestic and US$1 billion of offshore hybrids. In a globally low interest rate environment, these issues have been well supported by investors and this is reflected in the movement of the average hybrid trading margin over 2016. Figure 1. AT1 Average Trading Margin [...]
On the 6th of July 2016 ratings agency S&P issued a request for comment relating to proposed amendments to Australian Prudential Regulation Authority’s (APRA) evaluation criteria regarding the capital adequacy of banks. Ultimately, the agency’s intention is to begin capturing recent Basel III enhancements that were introduced after the Global Financial Crisis in Pillar 3 bank disclosure statement reports. [...]
Major bank tier 1 hybrids have continued to rally over the past fortnight as markets have shrugged off the spike in market volatility experienced directly after the 23rd June Brexit vote. The Westpac Convertible Preference Shares (ASX Code: WBCPC) have had the largest compression in spread (0.84%) followed by the NAB Convertible Preference Shares 2 (NABPB) compressing by 0.63%. [...]
Following S&P’s announcement on Thursday that Australia’s outlook had been downgraded to “Negative”, the agency stated on a conference call it would be unlikely that Australia’s “local currency rating” would stay at AAA if the “foreign currency rating” is cut. As a consequence of the outlook downgrade some federal government agencies and the state governments of New South Wales, Victoria [...]
Since 1 January 2013 all Australian Banks regulated by the Australian Prudential Regulation Authority (APRA) have issued hybrid securities (also known as Additional Tier 1 (AT1) capital securities) that include terminology called a non- viability trigger event which is designed to absorb losses in a time of stress while the bank is still a going concern. These loss-absorption triggers allow [...]
On the 15th June 2016 Crown Resort Limited announced to the ASX planned initiatives to “enhance shareholder value”. These initiatives will significantly transform the company balance sheet and provide greater transparency on the underlying assets. Crown CEO said "The proposed demerger reflects the different nature of Crown Resorts' controlled Australian operating assets from its international investments. It will provide [...]
On 10th April 2006 Futuris Corporation Limited (named changed to Elders Limited in 2009) issued perpetual, subordinated, convertible, unsecured notes (ASX Code: ELDPA) raising $150 million. Distributions on these securities are discretionary, floating rate, preferred and non-cumulative. The interest rate margin was set at 2.20% p.a. above the 90-Day BBSW until the First Remarketing Date on the 30th of June [...]
The increased interest shown by wholesale investors for Additional Tier 1 (AT1) hybrids can be neatly encapsulated by the ANZ launching the first US dollar hybrid offer to overseas investors since 2009. ANZ has been able to obtain an ATO private ruling that allows the bank to issue the hybrid via an offshore branch (London) without having to attach franking [...]
With the successful closure of the second major bank Tier 1 hybrid book build of 2016, now is a good time revisit why these securities are issued and look at how these securities dominate the overall ASX listed interest rate securities universe. Generally speaking, the banks, insurance and diversified financial sector issue these securities to satisfy regulatory capital requirements (Figure [...]
In Australia, financial institutions continually use debt capital markets as source of funding. But what about other companies? The majority of ASX200 non-financial groups tend to issue overseas in larger markets such as the UK, the Eurozone, Singapore and the US. From our findings, we discovered on average 44% of borrowings for ASX200 companies that have marketable debt in Australia [...]
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