New Issue: Bank of Queensland Capital Notes 3

On 24 October 2022, Bank of Queensland (ASX: BOQ, the Issuer) launched an offer for Bank of Queensland Capital Notes 3 (the Notes, expected ASX Code: BOQPG), to raise $300 million, with the ability to raise more or less. The purpose of the Issue is to raise regulatory capital (Additional Tier 1) for BOQ with the proceeds intended for corporate and funding purposes.

BOQPG are structured as unsecured, perpetual, convertible subordinated notes. Distributions are discretionary, non-cumulative, floating rate, fully franked, and paid on a quarterly basis in arrears until converted or redeemed. The margin is guided at 3.40% to 3.60% p.a. above 90-day BBSW. 

The Notes have no fixed maturity date but are scheduled for mandatory conversion into BOQ ordinary shares on 16 June 2031, or later, when conversion conditions have been satisfied. At the Issuer’s discretion, and subject to approval by APRA, BOQ can redeem or resell the Notes for cash at face value or convert the Notes into BOQ ordinary shares on 15 December 2028, 15 March 2029 or 15 June 2029. The Notes may also be redeemed or resold if a Tax or Regulatory Event occurs, subject to APRA approval. The Notes will convert into BOQ ordinary shares following an Acquisition Event, subject to conversion conditions.

We recommend investors Subscribe predicated on the indicative pricing reflecting fair value coupled with our fundamental credit comfort with the Issuer. At an issue margin at the mid-point of the 340-360bps indicative margin range, BOQPG is fairly priced with a reasonable new issue concession compared to the Big Four Major Bank (B4), and Regional Bank ASX AT1 curves. At the right-hand side of the indicative range, there is a robust concession premium, so we suggest bidding for greater size at the top end of the indicative range. To be clear, a concession is additional value to what we consider to be fair value.