What is a Tier 1 Hybrid investor likely to receive if a Tier 1 Hybrid is Converted due to a Common Equity Trigger Event and/or Non-Viability Trigger Event?
If a Tier 1 Hybrid is Converted due to a Common Equity Trigger Event and/or Non-Viability Trigger Event, the Tier 1 Hybrid investor will receive Ordinary Shares in exchange for their Tier 1 Hybrid. The number of Ordinary Shares that a Tier 1 Hybrid investor receives is determined by a formula based on the trading price of Ordinary Shares (VWAP) during a period leading up to the Common Equity Trigger Event and/or Non-Viability Trigger Event and is capped at the Maximum Conversion Number. Details of the formula will be set out in the Prospectus.
The Maximum Conversion Number will apply if the VWAP at the time of the Conversion has fallen to or below 20% of the Issue Date VWAP. If the Maximum Conversion Number applies, this is likely to result in Tier 1 Hybrid investors receiving significantly less than $101 worth of Ordinary Shares per Tier 1 Hybrid (assuming a Face Value of $100) and losing a significant amount of the money they invested in the Tier 1 Hybrid as a result.
The Ordinary Share price at the time of a Common Equity Trigger Event and/or Non-Viability Trigger Event is likely to be substantially lower than the Ordinary Share price at the time when the Tier 1 Hybrid was issued. Hybrid investors may lose all or a significant amount of their investment. In addition, there may be no market for Ordinary Shares received on Conversion.
If a Tier 1 Hybrid is Converted, the Tier 1 Hybrid investor will cease to have any further rights as a Tier 1 Hybrid investor. Instead, they will become a holder of Ordinary Shares in the Bank and have the rights (and bear the risks) associated with that investment.
Where Hybrids are required to be Converted following a Common Equity Trigger Event and/or Non-Viability Trigger Event, Tier 1 Hybrid investors will not have the benefit of the protections offered by the Conditions to Scheduled Mandatory Conversion or the Conditions to Optional Conversion. Therefore, there is no guarantee that investors will receive a minimum value of Ordinary Shares for each Tier 1 Hybrid Converted or that those Ordinary Shares will be capable of being sold on the ASX.
Example - number of Ordinary Shares that a Hybrid investor would receive on Conversion following a Loss Absorption Event (Common Equity Trigger Event or Non-Viability Trigger Event)
Face Value: $100
Issue Date VWAP: $25
Current VWAP: $1
The number of Ordinary Shares issued on Conversion following the Loss Absorption Event is calculated as the lesser of: the Maximum Conversion Number (1) and the number given by the Conversion formula in the Prospectus (2).
(1) Maximum Conversion Number:
Face Value/(Issue date VWAP x 20%)
= 100/($25 x 20%)
= 20 Ordinary Shares per Hybrid.
(2) Conversion formula:
Face Value / 99% x Current VWAP.
= $100/ (0.99% x $1)
= 101 Ordinary Shares per Hybrid.
In this example, the Maximum Conversion Number is less than the number given by the Conversion formula, so the Maximum Conversion Number would apply and Hybrid investors would receive 20 Ordinary Shares per Hybrid. A Hybrid investor with 100 Hybrids would be allocated 100 x 20 = 2,000 Ordinary Shares.
At an Ordinary Share price of $1, the total market value of those Ordinary Shares would be 2,000 x $1.00 = $2,000, compared to the original $10,000 investment on the Issue Date. Assuming the Ordinary Shares are able to be sold at $1 (which may not be possible), the Hybrid investor would incur an $8,000 loss (excluding any brokerage costs).
What is a Tier 1 Hybrid investor likely to receive if a Tier 1 Hybrid is Written-Off?
If, for any reason, Conversion does not occur within 5 days of a Common Equity Trigger Event and/or Non-Viability Trigger Event (for example, due to a court order or action of a government authority), Tier 1 Hybrids must be Written-Off. If a Tier 1 Hybrid is Written-Off, all of the Hybrid investor’s rights in relation to their investment are terminated. The Tier 1 Hybrid investor will lose their entire investment and will have no further rights in respect of their Tier 1 Hybrid.
Example – Write-Off
If a Hybrid investor’s 100 Tier 1 Hybrids issued to that investor on the Issue Date at $100 per Hybrid are Written-Off, their entire investment in the Tier 1 Hybrid will be terminated and the Hybrid investor will incur a 100 x $100 = $10,000 loss. Investors in Tier 1 Hybrids in the form of convertible preference shares may retain some limited rights in these circumstances.