Primary issue investors rewarded in hybrid market

In the post-COVID period, barely a few days have passed with a major bank hybrid trading below its $100 face value. For sophisticated investors, who can purchase these hybrids as they are first issued at their $100 face value, this has meant frequent ‘stag’ profit potential as the hybrids list in the secondary market (the ASX).

A ‘stag’ profit refers to the profit made by an investor who participates in a new security issue at the offering price and sells them at a higher price shortly after the security begins trading in the secondary market.

Stag profits used to be a feature of IPO-share listings, but this is becoming gradually more uncommon for new stocks listing on the ASX. As an advisor, my perception is that there have been an increase in listings that aim to make money FROM investors, as opposed to making money FOR investors.

Not so for the major-bank hybrids.

Banks and major financial institutions issue these products as a way to maintain capital adequacy ratios. As such, they can be mutually beneficial to both the issuer and the investor. The banks need these securities on their books to keep lending, and they will pay attractive yields to investors to do so.

ANZ recently launched their heavily oversubscribed Capital Notes 8 hybrid offer. These hybrids will soon join the long list of major bank hybrids offering a grossed-up yield of more than six percent. Wholesale TradersCircle and Emerald Financial clients were able to participate in this offer.

We expect that there will be a couple more major bank hybrid offers in the coming months. If you are a wholesale investor looking to participate, please contact us to open an account: or 03 8080 5777.

We will also be running information session on how ASX-listed hybrid securities work and how they are priced. This will be in the form of an online webinar, which will be held at 7:00 PM AEDT on Thursday 23rd March, you can register to view this free session here.