CBA’s newest hybrid has started trading in the last week and Westpac’s latest replacement for its soon-to-be-redeemed Westpac TPS units has had a trading margin set at 4.90% above the Bank Bill rate. Now NAB has announced that it too will be issuing a hybrid security, NAB Capital Notes 2 (ASX code: NABPD). These instruments will qualify as Additional Tier 1 (AT1) capital under the Basel III bank regulatory framework. With the prevailing level of interest rates, they will pay around 6.95% pa inclusive of franking credits.
The issue of NAB Capital Notes 2 seeks to raise $750 million, with the ability to raise more or less depending on demand. The indicative margin range is 495bps to 510 bps, which is broadly in line with Westpac’s indicative range of 490bps to 510bps. The margin on Westpac has been set at 490bps and so NAB’s indicative range may be seen as a deliberate attempt to offer subscribers at least an extra 5bps for the extra 6 months to maturity.
The first call date will be on 7 July 2022 and subject to APRA approval, NAB may elect to convert, redeem or resell NAB Capital Notes 2 at this time. If not called by 8 July 2024 the new notes will mandatorily convert in NAB shares.
Investment is all about relativities. If one invests in this latest offering, what other investment opportunities are foregone? The most relevant question is of where the new hybrid fits relative to current trading margins available to investors. Commonwealth Bank’s PERLS VIII were issued two months ago with a margin of 510bps but as the chart below indicates, any buyer in the secondary market will now get closer to 450bps.
For readers who are interested in the issue margins of other hybrids, there is a chart in a recently published article about Westpac’s Capital Notes 4 issue.
The issue is open to holders of Westpac’s various ASX-listed securities registered on or before 26 May 2016 and clients of the joint lead managers and co-managers to the issue. There is no direct public offer. Trading on the ASX is expected to commence on 8 July 2016.