Insurance Australia Group (IAG) has all but confirmed it will issue a new security before the end of June. It also strongly hinted its RES would not be reset at the end of the year.
In its first-half report, IAG noted the December 2019 reset date and the consequent loss of regulatory capital eligibility. In the report, IAG stated, “In addition, the $550m Reset Exchangeable Securities (RES) issue has a reset date in December 2019, after which it ceases to be eligible for regulatory capital purposes. IAG may seek to issue a new Tier 2 instrument prior to 30 June 2019, subject to market conditions, to assist in refinancing the RES.”
Certainly, the intentional insertion of this paragraph is a large hint a new Tier 2 security is coming, although IAG allows itself some wriggle room with the use of the word “may” rather than the word “will”. However, it also clearly implies the RES will be redeemed. After all, the RES will lose their regulatory capital eligibility and “refinancing the RES” reads as if it is a done deal.
While assuming redemption on a call date or reset date may be a little presumptuous, convention dictates an issuer do so unless it is willing to have its reputation dented, a la the recent Banco Santander deferral. However, the Santander case itself illustrates the necessity of some caution; the very fact the issuer has an option to defer redemption should always be present in investors’ minds.