Just under two weeks after CBA announced its latest hybrid offering, Westpac has announced it too will issue another hybrid security. While CBA’s PERLS 11 Capital Notes (ASX code: CBAPH) is part of the refinancing of its soon-to-mature CBA PERLS 6 (ASX code: CBAPC), Westpac’s offer is to refinance its Westpac Capital Notes (ASX code: WBCPD) which are callable in March.
Westpac plans to raise $750 million via its issue of Capital Notes 6 (ASX code: WBCPI), 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 “general business purposes.” Westpac intends to resell its Capital Notes next March, effectively redeeming them. There are $1.4 billion WBCPDs on issue, so one could assume this issue is just Westpac preparing in advance.
The new notes have some features in common with equities and some features in common with debt securities. Distributions are at the discretion of directors but they are calculated according to a set formula with reference to the $100 face value of the securities. The notes will qualify as Additional Tier 1 (AT1) capital under the Basel III bank regulatory framework, which means they have the now-standard “trigger event” clauses which may lead to early conversion into ordinary shares or a write-off of the capital notes should APRA require it. In the event Westpac were wound up (and APRA had not already forced a write-off), its hybrids would rank above ordinary shares but below ordinary debt securities and other liabilities.