Westpac widens the hybrid margin to 400 bps

Westpac launched its highly anticipated hybrid capital issue yesterday, seeking A$750 million of funds with an offer that will pay a margin of between 400 and 425 basis points over the 90-day bank bill rate.

Westpac Capital Notes 3 will qualify as additional tier one capital. They are perpetual securities (although Westpac has an option to redeem them in 2021) and will convert to ordinary equity if a non-viability event is triggered.

There has been plenty of speculation about the margin Westpac would offer to attract investors, given that a number of hybrid securities are currently trading below their issue prices.

The margin is the highest rate paid by a big bank for hybrid capital since the financial crisis. With the 90-day bank bill rate a little around 2.15 per cent, the initial distribution would be between 6.15 per cent and 6.4 per cent.

Commonwealth Bank's PERLS VII hybrid was issued last October with a margin of 280 bps. Since then ANZ's Capital Notes 3 were issued on a margin of 360 bps and NAB's Capital Notes were issued on a margin of 350 bps.

Distributions on the Westpac notes, which will be paid quarterly and are expected to be fully franked, are discretionary and non-cumulative.