Stock Update


19 Mar 2018
Commonwealth Bank of Australia provides banking, life insurance, and related services for individuals, small businesses and medium sized commercial enterprises. The Bank provides corporate and general banking, international financing, institutional banking and stockbroking and funds management such as superannuation product.

The Commonwealth bank has recently announced its intention to issue a new series of hybrid securities called PERLS X. The bank intends to raise a total of $1.25bn and it is good timing from CBA as the margin on recently issued hybrid securities has been at a low point relative to the last couple of years. Westpac (WBC) recently issued a new series of hybrids which were sold at a margin of 3.25% above the six-month bank bill swap rate. In comparison, the PERLS X will be sold at 3.4% above the three-month bank bill swap rate. With an approximate 0.15% difference between the three and six-month swap rates, this puts these two hybrids on very similar yields.

The PERLS X will begin trading on 11 April and will have a call date on 15 April 2025. This makes it a seven-year hybrid, precisely the same as the new WBC hybrid. As a potential investment in the income portfolio, these new hybrids aren’t quite as attractive as those that we already hold in the income portfolio and therefore we will pass on this new CBA issue. The new PERLS X will be quoted under the ticker CBAPG.

There has been an interesting development in the hybrid space over the past couple of weeks which affects virtually all listed hybrids.The Bank Bill Swap Rate (BBSW) is used as the base rate upon which the margin is added to determine the yield of the hybrid. This means that as interest rates change, the yield on hybrids also changes. For at least the last year,the BBSW rates have been very stable with the 3-month sitting at around 1.71%and the 6-month at 1.9%, approximately. Over the past month, however, these rates have risen substantially. The 3-month BBSW is now at 1.935% and the 6-month is at 2.075%. The good news is that this increases the yield on the Rivkin Income portfolio by the amount of the increase in BBSW.



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