Westpac announces $500m hybrid issue
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Nicholas Grove is a Morningstar journalist.
Westpac Banking Corporation (WBC) on Wednesday announced it intends to raise around $500 million through the issue of new hybrids to be known as Westpac Capital Notes.
The notes, which will be quoted on the Australian Securities Exchange (ASX), are being offered with an issue price of $100 each, the bank said. The offer is expected to open on 7 February 2013.
Westpac chief financial officer Phil Coffey said the notes will qualify as additional Tier 1 capital under the prudential regulator's new Basel III capital adequacy framework.
"The issue will further strengthen Westpac's Tier 1 capital position. An issue of $500 million would add approximately 16 basis points to Tier 1 capital," Coffey said in a statement.
The notes will pay non-cumulative, floating-rate distributions quarterly in arrears, commencing on 8 June 2013. Distributions are expected to be fully franked, Westpac said.
The distribution rate will be determined as the sum of the 90-day bank bill rate plus a fixed margin, together multiplied by (1 - tax rate).
The margin is expected to be in the range of 3.20 per cent to 3.40 per cent per annum. This will be determined under the bookbuild and will not change, Westpac said.
For example, the distribution rate for the first distribution period would be 4.33 per cent per annum if the 90-day bank bill rate on the issue date was 2.98 per cent per annum and the margin was set at 3.20 per cent per annum, which is equivalent to an unfranked distribution rate of 6.18 per cent per annum, the bank explained.
When it comes to a potential "winding-up" of Westpac, the notes rank in priority to Westpac ordinary shares and equally with certain other capital securities issued by Westpac, but are subordinated to claims of senior creditors, the bank said.
The notes are perpetual with no fixed maturity date, but are expected to convert into Westpac ordinary shares on 8 March 2021, which is the first possible scheduled conversion date, Westpac said.
The bank also explained that the hybrids are subject to earlier conversion upon a capital trigger event, non-viability trigger event or an acquisition event.
The notes may be redeemed or transferred at Westpac's election on 8 March 2019 or redeemed earlier for tax, franking or regulatory events. Redemption is subject to prior written approval from the Australian Prudential Regulation Authority.
Holders have no right to request conversion, redemption or transfer. To realise their investment, holders must sell their notes on ASX at the prevailing market price, Westpac said.
A securityholder offer will be made to registered holders of Westpac ordinary shares, Westpac TPS, Westpac SPS, Westpac SPS II, Westpac CPS and/or Westpac Subordinated Notes 2012 at 7pm (Sydney time) on 21 January 2013, the bank said.
A broker firm offer will be made to Australian resident retail clients of the syndicate brokers and an institutional offer will be made to institutional investors invited by Westpac Institutional Bank.
The closing date for the securityholder offer is expected to be 5pm (Sydney time) on 1 March 2013. The closing date for the broker firm offer is expected to be 10am (Sydney time) on 7 March 2013, the bank said.
To read Morningstar's full report on these hybrids, including its recommendation, please click here.