Hot on the heels of Macquarie Bank’s hybrid issue, National Australia Bank has launched an issue of capital notes, aiming to raise $750 million of capital with an offer of securities paying a margin of 2.95 to 3.15 per cent over the bank bill rate.
NAB Capital Notes 4 are convertible, subordinated notes that will pay quarterly, non-cumulative distributions. Distributions are expected to be franked.
The notes will qualify as additional tier 1 capital for the group. NAB may redeem the notes in September 2027 – call date of 7.5 years.
NAB’s offer comes a week after Macquarie Bank raised $445 million of capital through an issue of hybrids, Macquarie Bank Capital Notes 2.
The Macquarie notes are priced at a margin of 2.9 per cent and have a call date of June 2026. They are perpetual, unsecured, convertible subordinated notes which qualify as additional tier 1 capital for the bank.
Distributions are discretionary and non-cumulative, and are expected to be partially franked.
The notes may be redeemed on December 2025 (a call date of 5.75 years) and they have a mandatory conversion date of December 2028.
Fixed income researcher BondAdviser has rated both issues “subscribe”. It says: “From a credit perspective, recent increases in core equity capital, lending constraints and higher risk weights required by the Australian Prudential Regulation Authority are positive outcomes for holders of debt and hybrid instruments of the banks.”
It says the securities offer a yield commensurate with the risk.
BondAdviser says that yields and margins in the hybrid market “are generally trending tighter” but “it is also our opinion that evolving bank regulations also mean the risks between common equity and additional tier 1 securities are diverging somewhat, with an improving credit outlook but a deteriorating credit outlook.”
The pricing of the latest hybrids is a little tighter than recent issues. Suncorp set a margin of 3 per cent when it issued Suncorp Capital Notes 3 last November and CBA set a margin of 3 per cent when it launched PERLS XII in October.
The Suncorp notes have a call date of June 2026 and the CBA notes have a call date of April 2027.
Bond Adviser says it does not expect a lot of supply-side pressure from issuers this year, which should give pricing support to the Macquarie issue.
It says: “It is important to acknowledge the currently very limited expectations in net supply of additional tier 1 capital instruments on the ASX, which is a further supportive factor of the tighter margin environment. With no foreseeable catalyst for change, these conditions are expected to continue.”
Bond Adviser says: “As rate expectations drift ever lower locally, trading margins will decrease absolutely and also narrow relatively against peer instruments, absent any issuer-related credit effect (for example, AMP).”