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Westpac will offer investors an annual unfranked distribution rate of up
to 6.8 per cent through the latest of a string of recent so-called hybrid equity
issues by major Australian companies.
The bank's Fixed Interest Resettable Trust Securities, taking the acronym of
FIRsTs, will be issued over the coming month to raise up to $700 million as
part of a plan to improve the bank's capital mix.
The securities qualify as a form of equity for regulatory and ratings agency
purposes and represent a cheaper wayto raise capital than issuing ordinary
shares.
While Westpac is battling to convince the market of the merits of its wealth
management strategy, the securities are likely to prove popular if other recent
issues, such as AMP's preferred resets, are any indication.
The promised return is not as high as that offered by AMP because AMP has a
lower credit rating than Westpac.
Savings Factory chief executive Tony Rumble said the expected margin would
represent a return equivalent or better than Commonwealth Bank's ``PERLS" issue
last year.
``People will be comparing it to a term deposit with Westpac, though a
five-year term deposit is something that is not typically a benchmark," Mr
Rumble said.
A prospectus is expected to be available on Westpac's website after having
been lodged with the Australian Securities and Investments Commission yesterday.
Salomon Smith Barney and Westpac Institutional Bank are joint lead managers to
the offer.
Westpac's chief financial officer, Phil Chronican, said the instruments were
expected to pay fixed quarterly income until December 31, 2007, when the rate
can be changed or the FIRsTS converted.
It is understood that conversion to ordinary equity can be made at this time
for a 2.5 per cent discount, but there is no great opportunity for equity
upside as with other issues.
Like other issues, the listed securities are likely to trade at a small
premium to the $100 face value and issue price, with little volatility as
investors treat the investment as largely a fixed income product.
The offer is expected to open on November 25, with the exact distribution
rate, representing a margin of up to 150 basis points above the five-year swap
rate (now about 5.3 per cent), set via an institutional bookbuild likely to be
concluded next Wednesday.
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