Westpac's hybrid still expensive---and could be hammered in secondary market

Christopher Joye

Coolabah Capital

Apparently Westpac was compelled to improve the skinny margin on its new ~$1bn perpetual non-voting equity hybrid following my AFR critique last week. "As a result of the AFR's analysis there was clearly investor resistance and Westpac was forced to push up the margin a solid 20 basis points to between 4.0 per cent and 4.2 per cent above bank bills," says Hill Capital's Matt Christensen. Today in the AFR I analyse the revised pricing and find it is still expensive with the lower 4% margin offering no new issue concession at all. I also worry about the commissions paid to brokers/bankers to spruik this deal. Some people are marketing an erroneous 6.7% "yield to maturity" when the cash yield is only 6.14% and this hybrid has no maturity (they are adding the 4% margin to the 2.7% swap rate over the next 5.5 years until the hybrid's optional call date rather than adding the 4% margin to the 2.14% 3 month bank bill rate). Read the full article for free here by clicking twice (VIEW LINK)

Christopher Joye
Portfolio Manager & Chief Investment Officer
Coolabah Capital

Chris co-founded Coolabah in 2011, which today runs $7 billion with a team of 33 executives focussed on generating credit alpha from mispricings across fixed-income markets. In 2019, Chris was selected as one of FE fundinfo’s Top 10 “Alpha...

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