Is ASIC right to slag hybrids?

Co-founder of the Switzer Report
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In a week when ASIC suggested that the term ‘hybrid security’ should be replaced with the words ‘capital note’, regional banks Suncorp and Bendigo and Adelaide have announced new issues. These issues follow the very successful jumbo issue from CBA (PERLS VI), and will also qualify as Tier 1 capital for the banks under the new Basel III capital adequacy framework.

ASIC Commissioner John Price warned: “An expectation that at the end of a set period an issuer will definitely redeem the hybrid so that investors get repaid in full is very dangerous”. He is right of course – however, this just reiterates the importance of looking at the issuer and their underlying business, and the terms of the note. I can’t see what is wrong with the term “hybrid” – it implies exactly what it is, a security with both debt- and equity-like features.

The issues

Bendigo and Adelaide Bank is issuing $125m of convertible preference shares (CPS), which includes a re-investment offer to the holders of the existing Reset Preference Shares. These are being redeemed on 1 November.

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