There’s nothing like being in the right place, at the right time.
The National Australia Bank yesterday became the first Australian bank to raise new capital in the credit crunch, without a deal to finance.
It went into the market after a good day on Wall Street on Friday and as news spread of the massive Chinese reflation package started circulating.
So spirits were up, confidence buoyant, and in those circumstances, it’s much easier to say yes to a multi million dollar investment in an Australian bank you may have been selling merrily a week or so ago because of ‘worries’.
"No ‘worries’ and in fact the NAB was knocked down in the rush of investors at the high end of the market to buy stock at $20 a share.
So much so that the original $2 billion raising was boosted 50% to $3 billion.
In fact you could say that the NAB has blinked and decided that with an expected flood of actual and potential bad debts coming from the failure of ABC Learning, Allco and doubt around the likes of Centro and other stretched borrowers, reinforcing its capital base might better done sooner, rather than later.
The NAB revealed last week that it had a $140 million exposure to ABC learning, a $20 million to Rubicon, which was part of Allco, and other unspecified debts with some of the estimated 70 companies in the Allco group. It had no exposure to Allco Finance Group. It also has $170 million in loans to three trusts controlled by Rubicon.
The bank revealed yesterday morning that it was raising the cash to strengthen its balance sheet and ”take advantage of organic growth opportunities”.
Several hours later it said that it had been so popular that ‘overs’ of $1 billion had been accepted.
"National Australia Bank Limited (NAB) today announced that it has successfully completed an institutional placement of 150 million new ordinary shares at $20.00 per share, to raise A$3 billion of new equity capital. The new shares will not be entitled to the final dividend for the year ended 30 September 2008.
"The initial placement size of A$2 billion was significantly oversubscribed from a range of high quality institutional investors.
"As a result, NAB has decided to increase the size of the offer to A$3 billion.
"The placement shares will be issued to a wide range of institutional and sophisticated investors who participated in the bookbuild.
"Settlement is scheduled to take place on Friday 14 November 2008 with the placement shares being allotted and quoted on the ASX on Monday 17 November 2008.
"Following completion of the placement, NAB will have a Tier 1 ratio above 8.0% under APRA guidelines.
"As previously announced, NAB will no longer underwrite its 2008 final dividend DRP shortfall. The successful placement reflects the strength of the Group’s franchise and positions NAB’s capital base strongly relative to its domestic and international peers. This will support the NAB’s aim to maintain a strong capital base, capable of taking advantage of organic growth opportunities.
"Standard & Poor’s have upgraded NAB’s outlook to Stable and affirmed the AA rating."
The trading halt that has been in place since 8am Monday will be lifted at market open this morning.
Up till now the Commonwealth Bank had raised $2 billion in an issue at $38 a share to fund the purchase of the BankWest business and to add to its capital base.
Now the NAB, which reported an 11% drop in 2008 profits (and around 28% in the second half as it was hit by losses and write-downs on credit derivatives and other edgy investments in the US, UK and Europe. Its bad debt charge quadrupled in 2008.
The ANZ Bank can be expected to follow the NAB with a raising of its own, seeing its earnings were hurt more than its peers in the September 30 year by bad and doubtful debts internationally and locally.
The NAB’s issue comes after the smaller Bendigo Adelaide Bank pulled a hybrid capital raising that was looking to raise around $75 million. The bank said it had done this because of uncertainty in the markets and a lack of demand for the sort of capital it was planning to issue.
NAB shares closed at $22.15 on Friday. The issue was at a discount of just over 9%. The shares resume trading today.
