I'm amazed banks continue to push out these type of unsecured warrants.
Does ANZ really think a 4.5% interest rate (BBSW+4.75%)*(1-tax rate) for the current BBSW of 1.73% (3 month)) is reasonable reward for the risk associated with the warrant? A 1.5% premium to secured, government guaranteed term deposits attracting 3% is nowhere sufficient enough for that risk given:
The last lot of capital notes issued by a bank (WBCPF) could be picked up for as low as $94 not long after floating and have only once traded at or above their face value of $100. You can still pick them up below face value today. This is also true of NABPB and CBAPD, amongst others, although some of the older issues with a higher interest rate now command a premium (eg, CBAPE).
- The warrant is unsecured
- The warrant is junior to just about every other debt ANZ may have except ordinary shares
- Can be converted at any time to ordinary ANZ shares at ANZ's whim
- Any conversion is subject to an undisclosed and arbitrary maximum no. of shares
- ANZ can arbitrarily decide not to pay the coupon, solely at their discretion, without affecting normal dividends
Senior company bonds (ie, ranking before most creditors), commonly with a BBB credit rating, can often pay a coupon rate higher than this, are secured, and must be redeemed by cash. OK, these bank warrants come fully franked, but tax is never a good driver for investment decisions.
The Australian banks taking ozzie investors for a ride continues?
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