New Issue: NAB Capital Notes 7

On 21 August 2023, National Australia Bank (ASX: NAB, the Issuer) launched an offer for NAB Capital Notes 7 (the Notes, expected ASX Code: NABPJ), to raise $1.0 billion, with the ability to raise more or less. The purpose of the Issue is to raise regulatory capital (Additional Tier 1) for NAB, with the proceeds to be used for general corporate purposes.

NABPJ are structured as convertible, unsecured, subordinated, perpetual notes. Distributions are discretionary, non-cumulative, floating rate, and expected to be franked at the same rate as dividends paid on NAB ordinary shares (currently 100%), paid on a quarterly basis in arrears until converted or redeemed. The margin is guided at 2.80-3.00% p.a. above 90-day BBSW.

This security has no fixed maturity date but is scheduled for mandatory conversion into NAB ordinary shares on 17 June 2033 or on the first subsequent distribution payment date on which the conversion conditions are satisfied. Subject to APRA approval and certain conditions, NAB has the right to convert, redeem, or sell some or all the Notes on 17 September 2030, 17 December 2030, 17 March 2031 or 17 June 2031 or following a Tax, Regulatory or Potential Acquisition Event. NAB must convert the Notes into NAB ordinary shares after an Acquisition Event, subject to certain conditions.

Considering the asymmetric supply-demand dynamic in AT1 markets due to a dearth in expected new issuance coupled with our fundamental credit confidence in the issuer, NAB, we advise qualified investors to Subscribe. Our view is that the Offer is good value at the upper-end of the guided range and on the richer side of fair at the lower-end, and we would recommend scaling bids accordingly.