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Source: Reuters
Westpac Banking Corporation has joined the banking sector's capital raising bandwagon, raising $A2.5 billion in shares from institutions.
The move comes as rival Commonwealth Bank of Australia (CBA) Ltd takes advantage of a government guarantee to launch a debt raising.
A week after swallowing St George Bank, Westpac on Tuesday sold 156.25 million shares at $A16.00 each and said the new shares would start trading on Tuesday, December 16.
Brokers said the share price for the Westpac issue represented a 10.5% discount to Westpac's previous close at $A17.88.
Westpac's retail shareholders will be able to subscribe for shares in an upcoming non-underwritten share purchase plan, with total subscriptions capped at $A500 million.
The size of the discount on Tuesday is in line with that applied by National Australia Bank Ltd (NAB), which last month raised $A3 billion of equity from institutions.
It was also similar to the discount offered by CBA when it raised $A2.1 billion to acquire BankWest and HBOS Australia-linked funds manager St Andrews in October, Austock Securities adviser John Buonaccorsi said.
CBA syndicate manager Paul O'Brien told AAP the debt issue would assist the bank with its annual funding program.
CBA is offering $A750 million of transferable certificates of deposit (TCDs) maturing in December 2013 and will be guaranteed by the Commonwealth of Australia.
It is also offering $A500 million of TCDS maturing in December 2011, which will not be guaranteed.
The debt will be fixed or floating rate depending on investor demand.
The 2011 deal is being marketed at a margin of between 150 and 160 basis points over the bank bill swap rate, and the 2013 line at 120 basis points over.
The five-year offer takes advantage of a wholesale funding guarantee announced by the federal government on October 12 for senior unsecured debt instruments with maturities of between 15 months and 60 months issued by financial institutions.
Westpac said the $A2.5 billion equity raising would strengthen its balance sheet, boosting its Tier 1 capital ratio to around 8.32% - the second highest of the Big Four banks behind NAB.
Banks are subject to a prudential capital ratio of 8% of total risk weighted assets, half of which - 4% - must be held in Tier 1 capital to protect themselves from unanticipated losses and ensure their safety.
A bank's Tier 1 capital ratio affects its credit rating and ability to borrow and pay dividends and Australia's major lenders have been taking steps to lift their Tier 1 capital ratios above 8%.
Before the CBA bond launch, brokers said Westpac's equity raising would highlight the need for CBA to catch up.
Westpac also said on Tuesday that earnings for the first two months of its fiscal 2009 were hit by higher impairment provisions.
These included top-up to provisions for previously announced exposures, including those to troubled firms Allco Finance Group Ltd and ABC Learning Centres Ltd, as well as for one corporate downgrade, the bank said.
But overall earnings are trending in line with its fiscal 2008 second half performance.
Shares in NAB and ANZ Banking Group Ltd also suffered falls on Tuesday as investors sold and moved into the Westpac offer.
Westpac also said it had also set aside a $A500 million buffer for "acquisition adjustments" from its $A15 billion takeover of St George, which could be used to either prop up the St George acquisition, cover future dividends or make acquisitions.
Before the CBA bond launch, brokers said Westpac's equity raising would highlight the need for CBA to catch up."It sounds like they could be paying a little bit extra in goodwill," IG Market's Ben Potter said.
