The Australian hybrids market is busy at the moment. Shortly after ANZ’s latest hybrid began trading at the end of September, Bendigo and Adelaide Bank announced the redemption and replacement of its Bendigo CPS (ASX code: BENPD) with its latest CPS 4 hybrid. Now Suncorp Group has announced it will also be issuing another hybrid to join its six existing hybrid securities and notes which are already listed on the ASX.
The offer comes just over six months after Suncorp’s last hybrid capital raising in March/April when $375 million was raised. Suncorp plans to issue $250 million worth of Capital Notes 2 (ASX code: SUNPG), with the ability to raise more or less than this amount. The new securities will be perpetual, convertible, subordinated, unsecured notes and the proceeds will be used for ongoing funding and other general purposes.
The offer was expected as Suncorp’s CPS2 (ASX code: SUNPC) securities are approaching their December optional exchange date. There is a convention in bond markets where “callable” securities are typically redeemed on this date. (ANZ has breached this convention recently by not redeeming its ANZ CPS3 but it seems to have escaped criticism because of a re-investment offer which holders found attractive.) In order to maintain capital ratios in light of APRAs’ banking requirements, a new issue of some sort was likely.
The new notes have some features in common with equities and some features in common with debt securities. They will qualify as Additional Tier 1 (AT1) capital under the Basel III bank regulatory framework, which means they have the now-standard “trigger events” clauses which may lead to early conversion into ordinary shares or a write-off of the capital notes should the bank’s balance sheet require it. In the event Suncorp is wound up, Suncorp’s various hybrids, including the new notes, would rank above ordinary shares but below ordinary debt securities.