New Issue: Australian Unity MCIs

On 3 June 2024 Australian Unity Limited (‘Australian Unity’, the ‘Group’, or ‘AYU’) launched an Entitlement Offer and an accompanying Wholesale Placement of Australian Unity Mutual Capital Instruments (ASX: AYUPA) seeking to raise approximately $75 million at a price of $72.50 per security. The offer price represents a 11.6% discount to the AYUPA closing price of $82.00 on 31 May 2024. This would be the second tap of AYUPA, with the purpose to raise capital for AYU and use the proceeds to repay debt drawn to fund the acquisition of my Homecare Group (MHC) which was completed on 28 March 2024.

AYUPA IPO’ed in December 2020, raising $120 million at $100 per security (Face Value). This was followed by the first tap launched in October 2021 at a price of $103 per security, which raised $230 million. The new securities are fully fungible and rank equally with existing AYUPA securities and will trade on the ASX under the same ticker.

These securities are structured as perpetual, fully-paid mutual capital instruments. They have no security over the assets of the Issuer and are contractually subordinated to all creditors. Additionally, the securities are structurally subordinated.

Distributions are discretionary, non-cumulative, fixed rate, fully franked and paid on a semi-annual basis in arrears at a fixed interest rate of net 5.00% per annum (gross 7.14% p.a. on a franked basis) calculated on the Face Value.

Holders have no right to request AYU repurchase these securities. AYU has the right to repurchase the securities in full on the occurrence of a Tax or Regulatory event. In the event of a Demutualisation Event, AYU must repurchase the securities at 101% of Face Value.

The AYUPA offer comprises:

  • Entitlement Offer: 1 for 3 pro rata non-renounceable entitlement offer, expected to open on 12 June 2024 and close on 21 June 2024. AYUPA securities trade ex the entitlement offer on 31 May 2024. The record date is 6 June 2024.
  • Wholesale Placement: A placement to institutional investors, expected to be undertaken over 3-4 June 2024. The results of the placement are expected to be announced on 5 June 2024.

We recommend that investors Subscribe to the AYUPA tap Offer at a price of $72.50. We also recommend that Eligible Investors should participate in the Entitlement Offer. We retain credit comfort with the Issuer and have upgraded our credit outlook to Improving. From a relative value perspective, we see the Offer as providing excellent valuation claims, benefitting from the convexity in being offered at an entry point significantly below par.