New Issue: Westpac Capital Notes 9

On 21 June 2022, Westpac Banking Corporation (ASX: WBC) launched an offer for Westpac Capital Notes 9 (expected ASX code: WBCPL), to raise $750 million, with the ability to raise more or less. The offer is accompanied by a Reinvestment Offer for Eligible Holders of Westpac Capital Notes 2 (ASX: WBCPE). The purpose of the issue is to raise regulatory capital (Additional Tier 1) for WBC, with the proceeds to be used for general business purposes and to fund the refinance of WBCPE.

WBCPL are structured as redeemable, unsecured, subordinated, perpetual, non-cumulative, convertible notes. Distributions are discretionary, non-cumulative, floating rate, subject to distribution payment conditions, and expected to be fully franked, paid on a quarterly basis in arrears until converted or redeemed. The margin is guided at 3.40-3.60% p.a. above 90-day BBSW.

This security has no fixed maturity date but is scheduled for mandatory conversion into WBC ordinary shares on 22 June 2031, or later, when conversion conditions have been satisfied. At the Issuer’s discretion, WBC can redeem (subject to approval by APRA), transfer, or convert the Notes into WBC ordinary shares (subject to conversion conditions) on 22 September 2028, 22 December 2028, 22 March 2029 or 22 June 2029. The Notes may also be redeemed (subject to APRA approval), transferred, or converted into WBC ordinary shares (subject to conversion conditions) if a Tax or Regulatory Event occurs. The Notes will convert into WBC ordinary shares following an Acquisition Event (subject to conversion conditions).

We recommend investors Subscribe due to pricing reflecting fair-value and our fundamental credit comfort with the Issuer, WBC. We see fair value for outstanding comparable securities at the 6.25-year tenor at around the 335-340bps margin mark. At an issue margin at the bottom of the indicative range 340-360bps, WBCPL offers little to no concession premium. At the top end of the indicative range, we see a suitable concession premium. Consequently, we would bid in greater size at the top of the range than the bottom. To be clear, a concession is additional value to what we consider fair value.