New Issue: NAB Capital Notes 6

On 6 June 2022, National Australia Bank (ASX: NAB) launched an offer for NAB Capital Notes 6 (expected ASX Code: NABPI), to raise $1.0 billion, with the ability to raise more or less. The offer is accompanied by a Reinvestment Offer for Eligible Holders of NAB Capital Notes 2 (ASX: NABPD). The purpose of the issue is to raise regulatory capital (Additional Tier 1) for NAB, with the proceeds to be used to fund the Bank’s businesses and refinance NABPD.

NABPI are structured as convertible, unsecured, subordinated, perpetual notes. Distributions are discretionary, non-cumulative, floating rate, franked at the same rate as NAB ordinary shares (currently 100%), and paid on a quarterly basis in arrears until converted or redeemed. The margin is guided at 3.15-3.35% p.a. above 90-day BBSW.

This security has no fixed maturity date but is scheduled for mandatory conversion into NAB ordinary shares on 17 September 2032 or on the first subsequent distribution payment date on which the conversion conditions are satisfied. Subject to APRA approval and certain conditions, NAB has the right to convert, redeem or resell some or all the Notes on 17 December 2029, 17 March 2030, 17 June 2030, 17 September 2030 or following a Tax or Regulatory Event. Some or all Notes may also be converted following a Potential Acquisition Event, subject to conversion conditions and APRA approval.

We recommend investors Subscribe due to a fair-to-attractive relative concession and our fundamental credit comfort with the Issuer, NAB. We see fair value for outstanding comparable securities at the 7.5-year tenor at around the 292-297bps margin mark. At an issue margin at the bottom of the indicative range 315-335bps, NABPI offers a fair concession premium. At the top end of the indicative range, we see a robust concession premium. Consequently, we would bid in greater size at the top of the range than the bottom.