On 4 March 2024, Insurance Australia Group Limited (ASX: IAG) launched an offer for Insurance Australia Group Capital Notes 3 (Expected ASX Code: IAGPF), to raise $300 million, with the ability to raise more or less. The purpose of the Offer is to raise Additional Tier 1 (AT1) regulatory capital for IAG, with proceeds to be used for general corporate purposes.
Capital Notes 3 is structured as fully paid, non-cumulative, convertible, perpetual, subordinated, unsecured notes. Distributions are discretionary, non-cumulative, floating rate and expected to be franked at the same rate as Ordinary Shares (40% for the dividend announced 16 February 2024), payable on a quarterly basis in arrears. The margin is guided at 3.20-3.40% p.a. above 90-day BBSW. There is no obligation on IAGPF Holders to pay IAG if the distribution rate was to become negative.
This security has no fixed maturity date but is scheduled for mandatory conversion into IAG Ordinary Shares on 15 September 2033, or later, if conversion conditions have been satisfied. At the Issuer’s discretion, and subject to approval by APRA, IAG can redeem or resell Capital Notes 3 for cash at face value or convert Capital Notes 3 into IAG Ordinary Shares on 15 December 2030, 15 March 2031, 15 June 2031, or 15 September 2031. Subject to APRA approval, Capital Notes 3 may also be redeemed, resold, or converted into IAG Ordinary Shares if a Tax or Regulatory Event occurs. Capital Notes 3 will convert into IAG Ordinary Shares following an Acquisition Event, subject to conversion conditions.
We recommend that investors Subscribe to IAGPF. At the left-hand side of guidance, we view there to be a reasonable concession to fair value. We have evaluated fair value using a number of methods, and our ultimate fair value range is in the area of 305-310bps. This does not account for supply/demand dynamics in the market, which are leaning favourably to IAG, thereby making any concession offered more generous for investors than otherwise seen in the market recently.
