Bell Potter

Tabcorp / Tatts Proposal: minimal impact on TAHHB / TTSHA The Scheme of Arrangement announced between Tabcorp (TAH) and Tatts (TTS) is expected to have minimal impact on both the Tabcorp Subordinated Notes (TAHHB) and the Tatts Bonds (TTSHA). This transactions appears to satisfy a Change of Control Event under the TTSHA issue terms. This is triggered where another party gains more than 50% of the voting shares of TTS, giving TTSHA holders the right to require Redemption. Given TTSHA is trading at a premium, it appears unlikely that TTSHA holders will request Redemption under a Change of Control Event. As stated in TAH’s FY16 results presentation, TAHHB is “expected to be redeemed in Mar 2017”. This Call Date is before the expected Scheme of Arrangement completion in mid-2017.

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.



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