Citi and UBS test Aussie retail market with hybrid

Offer opens on A$259 million exchangeable note deal.

This week sees joint lead managers Citigroup and UBS test Australian retail investors' appetite for hybrid securities. An offer of amortizing, exchangeable unsecuritized notes is being made in the hope of raising A$259 million.

The issuer is Westpac Funds Management Limited and the cash will be used to partly fund the bank's recent purchase of a sizable stake in the oil and gas fields of the Cooper Basin.

The securities called FIELDS, which stands for Floating Interest Energy LinkeD Securities, are being issued at A$100 each and will pay 11% interest until November 16 this year. After that, interest is schedule to be paid quarterly at the variable bank bill rate plus 5.25% on the outstanding principal.
Retail investors will need to get their heads around a complex structure that includes ongoing capital repayments and a share conversion option at year eight. But if history serves, the notes will do well. Australia's retail investors have supported a prolific hybrid market in recent years in their search for higher yield.

Westpac will channel the funds raised from the deal towards its A$625 million purchase of a 45 per cent stake in Cooper Basin participant Delhi Petroleum. Delhi Petroleum emerged as the unexpected acquirer of ExxonMobil's interests in the oil and gas fields last year. Delhi controls approximately 21% of Australia's largest onshore petroleum province.

Aside from the subordinated note issue, the purchase was funded with a $247 million senior debt facility.

As an added sweetener to retail buyers, Westpac and its joint lead managers are telling investors that they will be given priority entitlement in any future IPO.

The FIELDS offer which opened on Tuesday will close on September 17. The securities are expected to list on the Australian Stock Exchange on October 6.

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