ANZ & CBA Capital Raisings

posted on August 13th, 2015 by Bellmont Research Team

ANZ and CBA have recently launched a $3bn and $5bn capital raising. There doesn’t seem to be much value for investors and as a result we will not be participating.

ANZ launched a $3bn raising with $2.5bn as an institution placement and the remaining $500m as a Share Placement Plan (SPP) for retail investors.

The SPP allows investors to purchase up to $15,000 worth of new ANZ shares at a price of the lesser of:

  • The offer price under the placement – which ended at $30.95 or
  • The volume weighted average price of fully paid ordinary ANZ shares traded on the ASX over the five trading days up to, and including, the last day of the SPP offer less a 2% discount.

This is a disappointing result for retail share holders who are only offered a very slim discount while having their holdings diluted by the institutional placement of $2.5bn. Given the slim discount we will not be participating. With the small amount being raised from retail investors there is likely to be a significant scale back. The RIO buy-back of a similar amount ($550m) earlier this year had a scale back of over 91%!

CBA has issued a $5bn renounceable rights issues allowing investors to purchase 1 new CBA share for every 23 currently held for a price of $71.50, a 10.5% discount to the dividend adjusted closing price as at the 11th August 2015. The new shares will not be eligible for the the up coming dividend. A renounceable right issues means that investors are able to sell their rights for cash rather than purchasing the stock. Given our already large exposure to CBA we will not be purchasing any new stock, instead we will sell our rights and treat it as a ‘special dividend’ and will look to deploy the new capital when we see better value.

If you have any questions or queries regarding these raisings please do not hesitate to contact us on 1300 368 295

Why are the banks doing capital raisings?

Following the Global Financial Crises, central banks and banking regulatory bodies worldwide have been working to implement changes to prevent an event like this from happening again. A key component of this framework is called the Basel III reforms which have been designed to strengthen bank liquidity and decrease their leverage. In short banks are required to hold more cash so that they remain stable during periods of extreme market distress. The Basel III reforms require banks to hold a defined level of liquid assets by certain dates, these levels are called Common Equity Tier 1 (CET1) capital.  In Australia the banking regulatory body APRA is imposing even stricter capital requirements on top of the Basel III reforms. In order to meet these requirements our local banks, including ANZ & CBA, have been undertaking a variety of different raising to boost the CET1 capital.

What is a capital raising?

When a business needs money to expand their operations or meet obligations they have two choices. They can borrow the money, or they can source the money from investors by selling them shares in the business. Capital raisings is the mechanism used for companies who want to sell shares in their business to source this funding. This is commonly referred to as an equity raising, i.e. they are selling equity in their business to raise the money. When a business borrows the money it is referred to as a debt raising, that is they have borrowed the money and gone in debt.

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