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Nicholas Grove is a Morningstar journalist.

Commonwealth Bank of Australia (CBA) on Monday announced a hybrid offer aimed at raising around $750 million.

The hybrids, which will qualify as Tier 1 capital and be known as Perpetual Exchangeable Resaleable Listed Securities VI or "PERLS VI," will have an initial face value of $100 each, the bank said.

The hybrids are subordinated and unsecured, and will pay quarterly, floating-rate distributions that are expected to be fully franked and non-cumulative, with a call date in December 2018 and a mandatory exchange date in December 2020, CBA said.

The proceeds of the offer will be used to refinance a previous issue, PERLS IV, and to fund the group's businesses, the bank said in a statement.

Also, holders of PERLS IV may be eligible to reinvest the face value of their PERLS IV in PERLS VI, the bank said.

"PERLS VI will be the first Basel III compliant Tier 1 hybrid issued by an Australian bank, demonstrating the group's proactive approach to its ongoing capital management strategy," CBA group chief financial officer David Craig said.

The issue will comprise a reinvestment offer to be made to eligible PERLS IV holders as at 7pm on the reinvestment offer record date.

A broker firm offer will also be made to retail investors who are clients of a syndicate broker and certain institutional investors, the bank said.

A securityholder offer will be made to eligible holders of ordinary shares, PERLS III, PERLS IV, PERLS V, CommBank Retail Bonds or Colonial Group Subordinated Notes as of the closing date of Friday, 5 October 2012.

A customer offer will be made to eligible customers of the group, while a general offer will be made to other Australian residents, the bank said.

In the allocation of the PERLS VI applications, priority will be given to those received under the reinvestment offer over applications received under the securityholder offer, customer offer and general offer.

Applications received under the securityholder offer will be given priority over applications received under the customer offer and general offer, CBA said.

The margin and volume of the issue will be determined through an offer bookbuild to be conducted on Monday, 10 September 2012, it said.

Morningstar equities analyst Ravi Reddy said the hybrid potentially offers investors attractive distributions that are backed by a business with strong competitive advantages.

However, he said additional terms, such as mandatory conversion trigger conditions, make the security the most "equity-like" of the major bank hybrids on issue and therefore the riskiest in what is relatively low-risk group.

Reddy also said investors also need to appreciate that the hybrid is an unsecured and subordinated investment, so in a wind-up scenario, investors could potentially lose all of their investment.

"Put simply, it is riskier than a bank deposit. To be very clear, though, we don't forecast financial distress for CBA," he said.

"We remind potential investors to weigh up alternative investment options, depending on their individual preferences: bank deposits, bank equity, or bank debt such as this security."

To read Morningstar's special report on the hybrid offer, please click here.