Australian Unity launched its offer of Mutual Capital Instruments yesterday, marking the debut of a completely new type of security in the Australian capital market.

Last year the government amended the Corporations Act, defining mutual entities in the legislation for the first time and permitting mutual entities registered under the Act to issue equity capital without jeopardising their mutual status.

The new law was created in response to the Hammond Report in 2017, which provided advice to the government on how to reduce barriers to enable co-operatives and mutuals to “invest, innovate, grow and compete”.

Distinctive features of mutual capital instruments include a restriction on the mutual entity’s ability to vary or cancel class rights. Dividends must be non-cumulative.

Australian Unity, which operates in the banking, private health insurance, aged care, investment management and financial advice markets, is seeking A$105 million with an issue of securities that will be capital of the group’s non-operating holding company.

Being the first issue of its kind, Australian Unity and its adviser Acacia Partners started with a blank sheet of paper.

The securities are perpetual, fully paid mutual capital instruments, with no set call date or maturity. They will sit in the capital structure as preferred equity, ahead of ordinary equity but below subordinated and unsecured debt.

MCI holders will each have one vote at Australian Unity general meetings. The securities will be listed on the ASX.

A fixed dividend rate has been set at 5 per cent. Australian Unity expects to pay fully franked dividends and with franking credits the yield will be grossed up to 7.1 per cent. Dividends are discretionary and non-cumulative.

The issuer has the right to repurchase the MCIs in certain circumstances: if a tax event occurs; if a regulatory event occurs; or in the event of a demutualisation.