A: The share purchase plan (SPP) is part of a $2.5 billion capital raising to strengthen Westpac’s balance sheet. $2 billion of the raising has already been completed through an institutional placement at $25.32 per share. The balance, which is expected to be $500 million (but could be more as Westpac retains a discretion) will be made available through the share purchase plan.

 

Under the SPP, Westpac shareholders will be eligible to apply for up to $30,000 of new shares. These will be made available at a price which is the lesser of $25.32 (the same price the institutions paid), or the weighted average price of Westpac shares traded on the ASX in the week leading up to the closure of the SPP, less a 2% discount.

 

This means that participants can’t pay any higher than $25.32 and could pay less if Westpac shares get hammered. For example, if in the week ending 2 December Westpac shares trade on average at $25, SPP participants will pay $24.50. They are protected from any fall in the price between now and the close of the offer on 2 December.

 

The offer opens on 12 November, closes on 2 December, with the new shares to be issued on 11 December. The minimum application is expected to be $1,000.

 

A scale-back of applications is a distinct possibility, as the SPP size is only currently $500 million. If for example 30% of Westpac’s 620,000 shareholders apply for an average of $5,000 each, that is $930 million of demand. If they apply for an average of $10,000 each, that is $1.86 billion of demand.

 

Importantly, the new shares won’t qualify for the final dividend for FY19 of 80 cents per share that is set to be paid on December 20.

 

Westpac has re-set its dividend and the market now expects a total dividend of 160c for FY20. Using the SPP stock price of $25.32, this gives a prospective dividend yield of at least 6.32%. With franking, it grosses up to almost 9.0%.

 

I expect a grossed up yield of 9% to be viewed as very attractive by many investors, and hence a strong response to the share purchase plan.

 

Please have a look at my article in Switzer Daily on the plan – see https://switzer.com.au/should-you-participate-in-westpacs-share-purchase-plan/