Bendigo and Adelaide Bank has launched an offer of hybrid securities, seeking $300 million of funds with the option to raise more.

Converting Preference Shares 4 (CPS4) are fully paid, non-cumulative, converting preference shares and will qualify as additional tier 1 capital.

Dividends will be paid quarterly and will be fully franked. The bank will pay a margin of between 3.75 per cent and 3.95 per cent over the 90-day bank bill rate.

At the current bank bill rate of 1.705 per cent, the dividend would be equivalent to a fully franked cash dividend of between 3.819 per cent and 3.959 per cent.

CPS4 securities are perpetual and have no fixed maturity date, but if certain conditions are met the bank may redeem, resell or convert CPS4 into ordinary Bendigo and Adelaide bank shares in June 2024.

There is a mandatory conversion date in June 2026 if the bank has not redeemed or converted before then.

The securities are subject to automatic conversion to ordinary shares upon the occurrence of a non-viability trigger event or capital trigger event. A non-viability trigger occurs when APRA provides a written determination that without the conversion or write-off of preference securities, or a public sector injection of capital, the bank would be non-viable.

A capital trigger occurs when the bank determines, or APRA notifies the bank, that its common equity tier 1 capital ratio is equal to or less than 5.125 per cent.

CPS4 securities are not liabilities of the bank and are not protected accounts for the purposes of the depositor protection provisions of the Banking Act.

The bank’s offer comes at a time when the hybrid market has regained strength. The average margin on major bank hybrid has contracted from about 4.5 per cent over the bank bill rate to around 3 per cent.