Hybrid securities have been popular for over twenty years in Australia. Each new issue of a hybrid provides another example of the ease at which companies, especially banks, are able to raise hundreds of millions of dollars by issuing these securities and usually with plenty of unsatisfied investor demand.
The latest ANZ capital raising via its latest Capital notes 5 offering is a good example. Already $552 million of the $1 billion offer has already been allocated to CPS 3 (ASX code: ANZPC) holders who are clients of brokers to the issue. Next in line are other ANZ security holders who were registered by 11 August. There is some chance ANZ will close the offer after this group of potential investors has had its pick.
Given the level of unsatisfied demand, there has been some discussion regarding the purchase of securities as a way of getting “closer to the front of the queue”, so to speak. There is one problem, however; the cut-off date for this priority is the same day as the announcement date. Once the announcement of a hybrid issue has been made, it is usually too late to buy the ordinary shares or some other ASX-listed security of the issuer.
With this in mind, Bell Potter’s Damien Williamson notes Suncorp’s CPS 3 hybrids (ASX code: SUNPC) and Bendigo’s CPS hybrids (ASX code: BENPD) are only a few months away from their December call dates. Typically, issuers offer a priority application to existing security holders and the latest ANZ issue is such an example. Williamson said, “For investors looking to pre-position into a short-dated hybrid with a likely refinancing issue, SUNPC on a 1.83% trading margin at $102.00 is our top pick. The $560 million SUNPC issue has two remaining quarterly coupons before its December call date, where we estimate the total income of $2.20 fully franked ($3.15 grossed up). A replacement issue for BENPD is also likely to be undertaken ahead of its December call date.”