New Issue: CommBank PERLS XIV Capital Notes

On 1 March 2022, Commonwealth Bank of Australia (ASX: CBA) launched an offer for CommBank PERLS XIV Capital Notes (expected ASX Code: CBAPK), to raise $750 million, with the ability to raise more or less. The offer is accompanied by a Reinvestment Offer for Eligible Holders of CommBank PERLS IX Capital Notes (ASX: CBAPF). The purpose of the transaction is to raise regulatory capital (Additional Tier 1) for CBA with the proceeds intended to refinance CBAPF and for general business purposes.

CBAPK are structured as convertible, perpetual, unsecured and subordinated notes. Distributions are expected to be discretionary, non-cumulative, floating rate, franked at the same rate as CBA ordinary shares (currently 100%), and paid on a quarterly basis in arrears until converted or redeemed. The margin is guided at 2.75-3.00% 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 2032, or later, when conversion conditions have been satisfied. CBA can choose to redeem or resell the Notes for cash at face value ($100), or convert the Notes into CBA ordinary shares on 15 June 2029, 17 December 2029, or 17 June 2030, or following a Tax or Regulatory Event, subject to conditions including APRA approval.

We see fair value around the 250bps margin mark, so at an issue margin at the bottom of the indicative range 275-300 bps, CBAPK offers a robust concession premium. We recommend investors Subscribe due to the relative value premium and our fundamental credit comfort with the Issuer, CBA.