Commonwealth Bank has launched an issue of hybrid securities, which will pay a margin of 3.4 per cent above the bank bill rate (currently 1.8 per cent).
Morningstar has recommended that investors subscribe to the offer, saying the indicative pricing range “is a fair price for hybrid investors looking to gain exposure to a preferred issuer.”
CommBank PERLS X Capital Notes are subordinated, unsecured notes and are expected to be fully franked. Distributions are discretionary.
They will have a call date of April 2025, when securityholders may be offered redemption or resale at the bank’s option.
If the notes are not redeemed on the call date, mandatory conversion to ordinary shares will occur in April 2027.
On Friday the bank closed the bookbuild at $1.25 billion. The minimum application is 50 PERLS X ($5000).
The offer closes on March 29 and the securities will trade on the Australian Securities Exchange from April 11.
The notes will qualify as additional regulatory tier one capital. Prudential rules require that they be exchanged for ordinary shares if a capital trigger event, a non-viability trigger event or a change of control event occurs.
Morningstar says in a presale report: “Access to liquidity at a fair price drives our recommendation. The near-term outlook for hybrid pricing should remain supported by technical factors, including diminishing supply and a preference for floating rate distributions.
“On the other hand, we do expect greater pricing volatility, in line with other asset classes. We maintain our preference for moat-rated issuers, such as the major banks.”
Hybrid securities have been in demand over the past couple of years, with the result that pricing has come in from a peak in March 2016, when CBA issued PERLS VIII at a margin of 5.2 per cent, to the current situation, with Westpac raising more than $1 billion at a margin of 3.2 per cent last month.
The latest CBA issue has received a much better reception than last month’s Westpac issue.
According to DCM Review, the CBA is more attractive in two respects: the term to call is seven years, rather than 7.5 years in Westpac’s case; and the margin is 3.4 per cent, up from Weatpac’s 3.2 per cent.
“CBA has recognised that the market has moved for listed additional tier one capital and has set the parameters of the PERLS X issue accordingly,” DCM Review says.
