Investing in Suncorp CPS2
Page 1 of 1
Nicholas Grove: Australian diversified financials company, Suncorp, recently announced it was looking to raise around $0.5 billion through the issue of some convertible preference shares to be known as CPS2. Here to give us an idea of what these hybrids can offer investors, I'm joined by Morningstar's Nicholas Yaxley.
Nick, thanks very much for joining us.
Nicholas Yaxley: No problem.
Grove: First off the bat, Nick, can you give us a brief idea of the structure of these securities and how do they differ from other interest rate security issues we've seen on the market recently?
Yaxley: Sure. These are mandatory converting hybrids, which basically means all else being equal, these securities will pay discretionary noncumulative distributions on a quarterly basis up until 19 December 2019. These are subject to particular conditions and at the same time, Suncorp has the option to redeem that issue two years earlier at their discretion.
They are slightly different to other securities in that they - interest rates securities that have been offered recently - in that they are designed for the insurance sector of Suncorp's overall business, and therefore they are more comparable to securities such as the IAG CPS, which was issued a few months ago rather than PERLS VI, which was the most recent issue.
Grove: Nick, who is eligible to invest in these securities and how much do you expect Suncorp to raise from the offer?
Yaxley: These securities are open to all investors. We expect that Suncorp will raise at least $500 million. They are looking - they have in the past raised at least that with previous securities they have issued and that's how we expect they will go going forward.
Grove: Nick, what's the margin on these hybrids and how does it compare to where you are expecting the margin to arrive at?
Yaxley: Yeah, the margin was set at bookbuild at 4.65 per cent. It is the lower end of the range of 4.65 per cent to 4.85 per cent which was originally announced. This is above where we put in our fair margin of 4.25 per cent and therefore we think this is a reasonable offer.
Grove: What are the main features of this issue that you find particularly attractive?
Yaxley: Well, historically, we've noticed that the Suncorp hybrids that have been issued in the past have all performed in line with expectations and therefore we're reasonably comfortable that these securities will also perform in line with what the market expects. This is something that the market has been watching very closely over the last over few years, but we are very comfortable with the issuer profile and hence we think this is an attractive offer.
Grove: Finally, Nick, what are the main risks investors should be aware of when it comes to investing in these hybrids?
Yaxley: I think the primary thing that investors should be very cautious of is that these are not deposits nor are they traditional corporate bonds. Investors need to understand the terms of these securities and how each term will individually influence the performance of these securities. The performance can be negatively influenced quite substantially by some of the terms such as the non-viability trigger and hence it's important that investors understand these things and what this will actually mean if and when the circumstance arises that the trigger may actually be influenced.
Grove: Nick, thanks very much for joining us.
Yaxley: No problem at all.
|This report appeared on www.morningstar.com.au||2013 Morningstar Australasia Pty Limited|
© Copyright 2013 Morningstar Australasia Pty Ltd ABN: 95 090 665 544 ("Morningstar"), AFSL no 240892. (a subsidiary of Morningstar, Inc.). This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written content of Morningstar. Some of the material provided is published under licence from ASX Operations Pty Limited ACN 004 523 782 ("ASXO").
DISCLAIMER: To the extent that any of the content above constitutes advice, it is general advice that has been prepared without reference to your objectives, financial situation or needs. Before acting on any advice, you should consider the appropriateness of the advice and we recommend you obtain appropriate financial, legal and taxation advice before making any financial investment decision. If applicable, investors should obtain the relevant product disclosure statement and consider it before making any decision to invest. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/About/ FSG or phone Morningstar on 1800 03 44 55 to request a copy. The data and content contained herein are not guaranteed to be accurate, complete or timely. Neither Morningstar, nor its affiliates nor their content providers will have any liability for any use or distribution of any of this information
Dow Jones & Co, Inc. is not a registered investment adviser and, under no circumstances shall any of the information provided herein be construed as a buy or sell recommendation, or investment or tax advice of any kind. You acknowledge that you are responsible for determining the nature, potential value and suitability for yourself of any particular security, transaction or investment strategy and that Dow Jones & Co, Inc. does not give such advice or recommendations.
DISCLOSURE: Employees may have an interest in the securities discussed in this report.