In recent months we have seen two high profile listed hybrids come to market, Westpac Capital Notes 5 (WBCPH) and CommBank PERLS X Capital Notes (CBAPG). Both of these were oversubscribed however we felt that their offer for yield was insufficient for us to participate. There are many factors to consider when investing for yield, and when you are seeking more yield you have three choices; i) extend tenor, ii) move down the credit quality spectrum; and iii) move down the capital structure. In the case for WBCPH and CBAPG (and other recent IPOs), the tenor has been extended to seven years or more, without the necessary pick up in margin over the 90-day Bank Bill Swap Rate. To understand this, we set the scene below and explain why we didn?t participate in the offer.
Monday, 26 March 2018