The rush is on for Heritage

Heritage Building Society (rated 'A3/BBB') is set to become the next borrower to tap the retail market. After a rush of issuance earlier in the year, the retail market appeared to be set to take off, but this didn't eventuate as the wholesale market quickly opened up to true corporate issuance.

However, HBS's ASX-listed subordinated debt issue (provisionally rated 'Baa1/BBB-') is unlikely to appeal to the institutional market, which will only buy government-guaranteed debt from any ADIs outside of the big four.

By going down this path, the mutual building society is showing its peers a new avenue for raising debt and/or bolstering lower Tier II capital, and one that is likely to be cheaper than tapping the wholesale market anyway.

(Retail investors are starved of opportunities to buy bonds and hybrid securities, as the recent bookbuild for the CBA's PERLS V issue clearly demonstrates.)

HBS is looking to raise A$30 million, more or less (it won't be less) and is offering a 10 per cent fixed coupon for the first five years. This equates to 450 basis points over the five-year swap rate. If the bonds are not called at the end of year five, the coupon will switch to floating rates, paying a margin of 6.65 per cent over the bank bill rate for the next five years, if not called earlier.