Santander Brasil goes tight on Basel III hybrid
The bank’s new capital instruments are set to come at a lower cost than it expected
Santander Brasil’s offer to shareholders to
subscribe hybrid bonds or subordinated debt has come at a lower
yield than it signaled when it flagged the capital optimization
deal in September.
The Baa2/BBB/BBB rated Brazilian lender is offering a 7.375%
tier one perpetual instrument and a 6% 10 year non-call five
subordinated tier two bond.
first indicated its intentions last year, it said it would
likely offer a coupon of 9% to 10% on the tier one, and 7.5% to
9% on the tier two.
Only existing shareholders may subscribe to the new
instruments, which the bank is selling as part of a strategy to
reduce its cost of capital. Santander Brasil will distribute
BRL6bn ($2.5bn) of equity — equal to BRL1.59 per unit
— to shareholders, which they may use to subscribe to
the new issue.
Santander Group has said it will subscribe any instruments
offered that are note picked up by other shareholders.
As indicated in September, the instruments offer a rare
glimpse at subordinated securities under Basel III format in
Coupons on the perpetual instrument are discretionary and
non-cumulative. The security will convert into stock if
Santander Brasil’s common equity tier one capital
drops below 5.125% of risk weighted assets.
The tier two will convert to shares if the
bank’s equity falls further, to 4.5% of risk
S&P rates the tier one BB and the tier two, BB+. It
assigns intermediate equity content to the tier one and minimal
equity content to the tier two.
The bank reported a Basel II tier one capital ratio of 19.9%
at the end of the third quarter. The bank estimates the
operation will increase return on equity by 40bp.
Shareholders have until January 24 to register for the sale.