03/06/2016: What impact will the new issue of NAB Hybrids have on the old issue?

Scott Schuberg:

Good afternoon members, welcome to Rivkin Virtually Live Local for Thursday the 2nd of June. I'm Scott Schuberg joined by Shannon Rivkin. How are you Shan?

 

Shannon Rivkin:

Good, thanks Scott, how are you?

 

Scott Schuberg:

Well, thank you buddy. a reminder to everybody that this show contains general advice only. All right. Firstly I'll get into the questions.

  

Shannon Rivkin:

Yeah, absolutely.

 

Scott Schuberg:

Okay, we've only got two questions today so please don't be scared, shoot them in. Peter from New South Wales, thank you for the information on the new hybrid issue for NABPD. Will this issue increase the chances of redemption for the NABHAs?

 

Shannon Rivkin:

Yeah, no doubt about it. Probably even more so if we see the issue increase, which we've seen with Westpac already. That one was almost doubled, but probably not right now, if you know what I mean. It's, I don't think it's right now, it's a focus for NAB. We haven't heard any commentary from them whatsoever about it. It seems to me like this is now becoming a bigger focus. More and more of these hybrids are being issued that all opened up in DRPs so their balance sheets of all these names have been cleaned up and obviously they got rid of Clydesdale as well to clean up a balance sheet.

 

 

Yes I think this is all good news for the future of NABHAs as far as redemption goes. Probably in the short term though, the one big negative is that right now the market's trying to raise capital to buy into both of these big new hybrids and we know where they're going to get the capital from, potentially from selling existing hybrids and probably the ones already the names that are actually issuing. NABHAs and other NAB hybrids might be used to fund this. That's a little bit of a short term concern but the good news is that this is all heading in the right direction.

 

 

One other thing I read recently is that ANZ is actually going with a very similar style hybrid to the US for the first time, so they'll be able to issue tier 1 capital over there, pay it without the franking credits as well, so it's going to be cheaper for them and relative to interest rates over there, it's going to be really appealing as well. So I think if that one gets away, you might see the NABs maybe do the exact same thing and that might be a prelude to redeeming the NABHAs, which aren't expensive for them but are, of course, classified as debt, which is a problem in this new regulatory environment.

 

Scott Schuberg:

Yeah, and I don't think you'll see necessarily a theme of, because like bond markets, if a new bond is issued that looks more attractive than the bond in the secondary market, that will get brought up and the one in the secondary will get sold down. I don't think you'll see a theme of that because if Westpac had their time over, I think they would go back to market with a deal not as good as this, like Shannon said, it's very likely to be able to subscribe. It's basically too attractive for the market. They could have got it away at a cheaper rate and benefited themselves.

 

 

I think any issuer coming out now will know that and they'll see the gauge on interest in Westpac and you won't see a raft of incredibly attractive hybrids issued after this one from the bigger players. I don't think any big problems for the secondary issues that are already trading in the market.