Mallesons Stephen Jaques is advising ANZ on its A$750million offer of convertible preference shares (CPS3), announced on Tuesday (August 23). Partners Ian Paterson and Jonathan Hamer are leading the team advising the bank. A team from Freehills led by Philippa Stone is advising the underwriters on the first public offer of Tier 1 securities since the Basel III reforms were announced.

The offer also contains features needed to meet the future demands of Basel III reforms and regulatory requirements. CPS3 will constitute Residual Tier 1 Capital under the Australian Prudential Regulation Authority's (APRA) current capital adequacy standards, the Mallesons partners said in a statement. “The capital adequacy requirements that apply to banks under APRA policy will be updated as a consequence of the Basel III banking reforms. The terms of issue therefore needed to be eligible to be treated as Additional Tier 1 Capital under the proposed transitional arrangements,” added Stone. The most significant difference from ANZ’s CPS1 and CPS2 was the additional mandatory conversion event, which depends on whether or not the issuing bank maintains a sufficient amount of the right type of capital, according to Hamer.

"We believe there is an opportunity to test market demand for a new style hybrid capital issue," ANZ chief financial officer Peter Marriott said in a statement. The event can still be considered a coup for ANZ as the first bank to make an offer this year to meet the demand in the retail market for this type of investment, according to Hamer.
As the first hybrid capital raising in the Australian market for approximately two years, the offer will provide the bank with additional flexibility to deal with future redemptions, according to Marriott.

Hamer said that once the banks release their end of year financial results in October, more hybrid capital raisings are expected to come. “This is the first to market of this ‘APRA-blessed’ form [and] we will see more,” he said. “This has been in process for over a year now. Other banks [will be] seeking to do it and other banks will be involved.” Hamer also said there will be similar mandatory conversion events and elements such as preference shares and dividend restrictions in the next offerings, making it possible for those working on similar deals to compare each with the other and establish a capital instrument that fits in with the new APRA standards.

Under the offer announced to the ASX the convertible preference shares will convert to ordinary shares on 1 September 2019.