Watmore and others...did you see the article below in Business...

Watmore and others...did you see the article below in Business Spectator?

A surprise twist possibly for the hybrids?

I don't think this will really worry TIMPB but it will some of the other hybrids. Glad I waited on GNSPA.


A surprise move by Australand Property Group to roll over a hybrid bond rather than pay it back is sending jitters through the Australian investing community and could make this form of debt more costly.

Analysts fear the Australian property group may have started a new trend when it decided on Monday to roll a $275 million ($US263.4 million) hybrid security called ASSETS, rather than retire the securities on October 1 as investors had expected.

Instead, Australand will pay an extra 250 basis points on top of the current coupon, a condition in the original sale but one investors always assumed would be too expensive for the company to consider.

"At the time the ASSETS were issued, we thought the possibility of Australand not buying back the securities in three years time was pretty slim," said a fund manager who asked not to be named because he is not allowed to speak to the press.

"A 250 bps step-up margin was a pretty big hurdle and we felt the price was reasonable compared with the risk," he added.

Australand announced the decision after reporting a 79 per cent fall in first half profit and a share offer worth up to $557 million.

Given its strained finances, analysts assumed it chose to pay more to roll over the hybrid rather than find the money to pay it off, even if that upset investors.

"In today's market conditions, it's a matter of survival (for the company)," said a fund manager.

By rolling over the hybrid, Australand has left investors holding a security with a potentially unlimited maturity instead of the three-year horizon first anticipated.

Investors said the market for such perpetual issues was extremely illiquid, making them very hard to sell.

Fund managers now fear other companies which have hybrid securities resetting this year could follow suit until market conditions improve.

They name Australian forestry firm Gunns Ltd , building materials company Brickworks Ltd , contractor Leighton Holdings and logistics group Toll Holdings Ltd as possible candidates to roll their hybrid debt.

As a result, many intend to demand better terms when companies try to sell new hybrid issues.

"In the future, I will ask for more bond protection like bigger step-ups or exit mechanisms with large discounts to equity upon conversion," said a portfolio manager