Westpac Bank are in the middle of a new hybrid issue which has just had its margin set at 4.90% above the 3 month Bank bill swap rate (BBSW). The book build process, which was open to stockbrokers and investment institutions, closed early as a result of heavy demand. Stockbrokers bid on behalf of their clients but what sort of institutions bid for hybrids? UniSuper revealed it had bought $285 million worth of the CBA PERLS VIII or 19.66% of the total number of PERLS VIII which were issued in March this year. Its investment dwarfs the second largest holding, which is still a substantial $51 million held on behalf of others by UBS Wealth Management Nominees.
Elstree Investment Management is a Melbourne-based fund manager which specialises in ASX-listed hybrid securities and notes. Norm Derham, an executive director at Elstree’s said the UniSuper purchase was a vote of confidence in both Commonwealth Bank and hybrids in general. “We can only assume that UniSuper’s rationale was that the PERLS VIII spread margin was above levels typically achieved on a long-term ex-post basis by equities…hybrids of course are senior to equity and are significantly less volatile.”
Elstree’s funds also invested in Commonwealth PERLS VIII. “Our decision was influenced by a “soft” cap on the issue size, a record high coupon margin for a tier 1 bank capital instrument and the cessation of secondary market selling as equity market volatility subsided.” (A “soft cap” refers to an issuer’s ability to accept any amount of funds).