New Issue: CommBank PERLS XV Capital Notes

On 18 October 2022, Commonwealth Bank of Australia (ASX: CBA, the Issuer) launched an offer for CommBank PERLS XV Capital Notes (the Notes, expected ASX Code: CBAPL), to raise $750 million, with the ability to raise more or less. The purpose of the Issue is to raise regulatory capital (Additional Tier 1) for CBA with the proceeds to be used to fund the Bank’s businesses and refinance Commbank PERLS VII Capital Notes (ASX: CBAPD).

CBAPL are structured as perpetual, subordinated, unsecured, and convertible notes. Distributions are discretionary, non-cumulative, floating rate and expected to be fully franked, paid on a quarterly basis in arrears until converted or redeemed. The margin is guided at 2.85-3.00% p.a. above 90-day BBSW.

This security has no fixed maturity date but is scheduled for mandatory conversion into CBA ordinary shares on 16 June 2031 or on the first subsequent distribution payment date on which the conversion conditions are satisfied. CBA has the option to redeem the Notes for cash at face value subject to APRA approval or resell the Notes at face value on 15 June 2028, 15 December 2028, or 15 June 2029. The Notes may also be redeemed subject to APRA approval if a tax or regulatory event occurs. The Notes will convert into CBA ordinary shares following a Change of Control 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 left-hand side of the 285-300bps indicative margin range, CBAPL is fairly priced, albeit on the rich side of fair value compared to the Big Four Major Bank and CBA ASX AT1 curves. At the right-hand side of the indicative range, there is a modest 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.