New Issue: Suncorp Capital Notes 5 (ASX: SUNPJ)

On 16 April 2024, Suncorp Group Limited (ASX: SUN) launched an Offer for Suncorp Capital Notes 5 (expected ASX ticker: SUNPJ), to raise $300 million with the ability to raise more or less. The purpose of the transaction is to raise Additional Tier 1 (AT1) regulatory capital for SUN with the proceeds used to fund the capital needs of one or more Regulated Entities within the Group and for general corporate purposes.

These securities are structured as redeemable, perpetual, unsecured, convertible and subordinated notes. Distributions are expected to be discretionary, non-cumulative, floating rate and expected to be fully franked, paid on a quarterly basis in arrears. The margin is guided to be 2.80% to 3.00% p.a. above 90-day BBSW. There is no obligation on Holders to pay SUN if the distribution rate was to become negative.

This security has no fixed maturity date but is scheduled for mandatory conversion into SUN ordinary shares on 17 December 2032, or later, when conversion conditions have been satisfied. At SUN’s discretion, the Notes can be redeemed, resold or converted into SUN ordinary shares on 17 June 2030, 17 September 2030 or 17 December 2030, or if a Tax or Regulatory Event occurs, subject to conditions and APRA approval. At SUN’s discretion, conversion (but not redemption or resale) may also happen if a Potential Acquisition Event occurs, subject to conditions and APRA approval. The Notes will convert into SUN ordinary shares following an Acquisition Event, subject to conversion conditions.

We recommend that investors Subscribe to SUNPJ. At the left hand side of guidance an appropriate concession is offered to fair value, especially considering the current primary supply/demand imbalance. We have evaluated fair value based on a number of different methods of analysis, and our fair value range lands around 270-275bps. To be clear, this estimate does excludes any new issue concession to secondary markets. In other words, it implies a 5-10bps new issue concession at the left hand side of the guided range.