Fixed Interest Weekly - Tabcorp/ Tatts Proposal: minimal impact on TAHHB/ TTSHA

CBA considering NZ retail offer of ASB Subordinated Notes

ASB Bank (owned by CBA) is considering a subordinated note offer (ASB Notes 2) to raise up to NZ$250m, with the ability to accept oversubscriptions up to NZ$150m.  Should the offer proceed, the offer is likely to open on 3 Nov 2016, with securities listed on the NZX Debt Market. 

This follows on from Westpac’s July 2016 NZD Subordinated Notes offer, which raised NZ$400m on a fixed yield of 4.695% (5 year swap + 2.60% margin).

Weekly trading idea: Buy CWNHA

Uncertainty once again surrounds Crown on the VIP business impact following the detainment by Chinese authorities of 18 Crown staff for suspected gambling crimes in a country where casinos are illegal.  While we estimate ~6-7% of Crown EBITDA is generated from mainland China tourists, the share price has fallen 17% from $12.95 on 14 Oct to $10.75.  At is AGM on 20 October, Crown stated “any assessment as to any material impact on the business was both premature and speculative”.

Overall, the $3.60 decline in CWNHA from $100.20 to $96.60 appears excessive.   Assuming redemption at the Sep 2018 call date, CWNHA is on a Yield To First Call (Maturity) of 9.15%, where the discount to face value increases the 5.00% issue margin to a trading margin of 7.41%.  By contrast, Crown November 2019 wholesale senior debt is trading on a fixed yield of 3.71%, representing a trading margin of 1.91% above 3 year swap, which provides a materially cheaper refinancing option. 

The capacity for Crown to redeem in September 2018 is enhanced by the delays in the Barangaroo project.

[FIW_161021.pdf]