Bendigo and Adelaide Bank kicks off $300m hybrid offer
Australian Financial Review Oct 16 2017 7:29 PM
Jonathan Shapiro, Joyce Moullakis
Regional lender Bendigo and Adelaide Bank has kicked off a $300 million hybrid debt raising to replace maturing securities and bolster its regulatory capital.
The bank's Converting Preference Share 4 offer, flagged by the The Australian Financial Review's Street Talk column, is set to pay investors a margin of between 3.75 and 3.95 percentage points over the bank bill rate of 1.7 per cent. That will result in an initial yield between 5.45 and 5.65 per cent.
The 3.75 per cent to 3.95 per cent margin range compares to a 3.50 per cent trading spread on the existing BENPF securities that are due to be called in June 2021.
The notes have a call date set in June 2024 and will refinance an existing issue of $269 million of preference shares issued five years ago that are due to be called by the bank in December.
Bendigo's raising comes at a time when the hybrid market has regained strength. The average margin on major bank Tier I hybrids has contracted from about 4.50 percentage points over the bank rate to around 3 per cent, as global economic conditions have improved, over-supply concerns have abated and the search for yield has resumed.
Westpac recently issued Tier I capital to global institutional investors, and a more attractive cost of funds than the ASX listed retail market that has traditionally provided the cheapest and most abundant source of funding for this form of capital.
Ahead of the announcement, investors were snapping up the maturing Bendigo notes in the hope of getting a priority allocation to the new offer that they expected would pay an attractive rate relative to other securities on issue.
Brokers noted similar price action in Suncorp securities, and the Queensland-based institution is widely tipped to follow Bendigo and Adelaide Bank with an offer before the end of the year.
Fixed income research house Bond Adviser recommended clients subscribe to the offer given the margin on offer was "fair and commensurate with its risk" based on other securities.
Westpac is the arranger and joint-lead manager alongside National Australia Bank and JPMorgan. JBWere and Ord Minnett are co-managers on the offer.
Bendigo said in a statement that the notes that will qualify as Tier I capital under the Australian Prudential Regulation Authority's stipulation will support its "balance sheet growth and enure Bendigo continues to have strong regulatory capital levels".