AMP's extra Tier 1 capital raising might be last listed issue

AMP advised the ASX on Thursday that it intends to issue Additional Tier 1 capital to wholesale investors.

AMP provided little detail other than to add that it was seeking A$150 million but would take more or less, the notes issued would be callable after five years with mandatory conversion into ordinary equity after seven years, a non-viability clause would apply (a capital event trigger is not applied to insurance companies), and the credit margin would be determined in a bookbuild (no date specified).

The announcement is hugely significant. Additional Tier 1 capital has not been issued in the wholesale market because of doubts over institutional investor appetite for debt that can convert into ordinary equity and concern over the credit margin that may be demanded for such risky debt.  

To date, credit margins demanded in international bond markets for Additional Tier 1 capital have been well in excess of those paid to investors participating in the issues that have been listed on the ASX. It has been assumed that institutional investors would demand credit margins in line with those paid in international markets.

AMP's Additional Tier 1 capital issue will test this assumption.

The problem with institutional investor reluctance to accept convertible debt has already been solved, with various equity pre-sale structures allowing Tier 2 capital to be sold to institutional investors used from the start of 2014.

Since then, there has been no Additional Tier 2 capital listed on the ASX and some A$3.4 billion of Tier 2 capital has been sold to institutional investors.

With Tier 2 capital issuance now being undertaken exclusively in the wholesale market, Additional Tier 1 issuance could well go the same way, if AMP's issue is judged to be a success.