On 16 May 2023, Commonwealth Bank of Australia (ASX: CBA, the Issuer) launched an offer for CommBank PERLS XVI Capital Notes (the Notes, expected ASX Code: CBAPM), to raise $750 million, with the ability to raise more or less. The purpose of the Issue is to raise regulatory capital (Additional Tier 1) for CBA with the proceeds to be used to fund the Bank’s businesses.
CBAPM are structured as perpetual, subordinated, unsecured, and convertible notes. Distributions are discretionary, non-cumulative, floating rate and expected to be fully franked, paid on a quarterly basis in arrears until converted or redeemed. The margin is guided at 3.00-3.20% p.a. above 90-day BBSW.
This security has no fixed maturity date but is scheduled for mandatory conversion into CBA ordinary shares on 17 June 2033 or on the first subsequent distribution payment date on which the conversion conditions are satisfied. CBA has the option to redeem the Notes for cash at face value subject to APRA approval or resell the Notes at face value on 17 June 2030, 16 December 2030, or 16 June 2031. The Notes may also be redeemed subject to APRA approval if a tax or regulatory event occurs. The Notes will convert into CBA ordinary shares following a Change of Control Event, subject to conversion conditions.
We recommend eligible investors Subscribe due to the relative value premium and our fundamental credit comfort with the Issuer, CBA.
At the left-hand side of the issue margin indicative range of 300-320bps, CBAPM offers attractive value with a healthy new issue concession. We have assessed fair value across seven different means of analysis and estimate this to be 290bps. The most material weight to our analysis is against outstanding comparable securities (ASX Big Four AT1 hybrids), which at the 7-year tenor, provides a fair value margin estimate of 285bps.