On Thursday 12 March 2020, after the market close, NAB announced that it was withdrawing its Offer of NAB Capital Notes 4 (expected ASX code: NABPG).
The Notes were previously launched on 17 February 2020 and the Offer had performed strongly with $1.95 billion allocated under the Bookbuild and the Margin set at 2.95%, the lower bound of the indicative range.
In explaining the action, NAB noted substantial changes in market conditions since the launch and ongoing market volatility, which would likely impact on the trading value of the Notes. For reference, we note that the closest major bank hybrid by tenor to the NAB Capital Notes 4 would have been CBA's PERLS XII, which has seen its trading margin widen from a little under 3.00% to just over 5.00% (a capital price of $88) over this time.
NAB considers this action to be in the best interests of relevant stakeholders, including the large number of retail investors who had expressed interest in participating in the Offer. Other options, including potential repricing were not considered appropriate in the absence of an orderly market. We estimate that should the deal have been repriced to 5.00% and assuming a $2.00 billion size, this would have added around $40 million (including franking credits) to NAB's annual costs of servicing the Note.
As part of the original announcement for NAB Capital Notes 4, the existing NAB Capital Notes (NCN), which were issued in March 2015, were to be purchased by a nominated purchaser for $100 per Note. This Resale of NCN is unaffected by the withdrawal of the NAB Capital Notes 4 Offer and will proceed on the original date of 23 March 2020.
NAB will refund Application Monies without interest and investors who applied through the Broker Firm Offer should contact their brokers to obtain their refund.
The Prospectus dated 25 February 2020 has now expired after its expiry date was brought forward to 12 March 2020.
NAB still intends to convert up to $750 million of NCN into Ordinary Shares (~18 basis points of Common Equity Tier 1 capital). It notes its pro-forma (31 December 2020) Tier 1 and CET1 capital ratios are 12.6% and 10.8% respectively.
We do expect NAB to return to the market to relaunch a similar deal, when market conditions stabilise sufficiently.