Australian Unity, which launched the first issue of mutual capital instruments last December, has launched a “tap issue” under the program.

It raised A$120 million with the initial issue, Australian Unity Mutual Capital Instruments (which are listed on the ASX under the code AYUPA), and is now seeking an additional $160 million.

The new securities will be fully fungible with the existing securities and will trade on the ASX under the same code.

The new form of capital raising has gone well for Australian Unity. With a cash distribution rate of 5 per cent, the initial issue was priced at $100 a security. The latest raising will pay the same distribution rate and is being offered at $103.

Mutual capital instruments are still very rare. The only other MCIs in the market were issued by risk product provider Our Ark in a private placement that raised $750,000.

In 2019, 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’s securities are perpetual, fully paid instruments, with no set call date or maturity. They sit in the capital structure as preferred equity, ahead of ordinary equity but below subordinated and unsecured debt.

The chief executive of the Business Council of Co-operatives and Mutuals, Melina Morrison, said the market for MCIs will grow but before they can raise capital mutuals have to amend their constitutions. COVID has got in the way of that process for many of them.