A Strong Play in the Australian Financial Market
Bank of Queensland Ltd (BOQ) has successfully priced a new AUD subordinated note issuance with a 10.25-year maturity, featuring a non-call period of 5.25 years. The notes carry a floating-rate coupon set at the 3-month BBSW plus 183 basis points, reflecting a tightening from the initial indication of 205 basis points during the IOI period. The issuance attracted strong investor demand, with an oversubscribed book reaching AUD 1.71 billion, leading to a substantial scale-back, resulting in the final issue size being capped at AUD 250 million – around 15% of the total demand.
Upon entering the grey market, the notes experienced swift price appreciation and will deliver an effective yield of 6.2267% per annum for the first quarter.
A Trusted Name in Australian Banking
Established in 1874, BOQ has grown into one of Australia’s well-established financial institutions. Headquartered in Brisbane, Queensland, the bank serves approximately 1.4 million clients through its extensive network of 125 owner-managed branches, 22 corporate branches, and over 18,000 accredited brokers across Australia. As of October 2024, BOQ has a market capitalization of AUD 4.4 billion.
BOQ’s financial strength is underpinned by a robust capital structure. According to BOQ’s annual report for the financial year ended 31 August 2024, the bank reported a Tier 1 capital adequacy ratio of 12.3%, with a Core Tier 1 capital ratio of 10.6%. These figures demonstrate BOQ’s strong capital position, ensuring resilience and stability within a challenging economic environment. Additionally, its liquidity coverage ratio (LCR) stands at 148%, while the net stable funding ratio (NSFR) is at 125%, reflecting the bank’s prudent liquidity management and its capacity to meet obligations under both short-term and long-term stress scenarios.
A Closer Look at the Subordinated Notes
The new issuance is well-aligned with similar recent Tier 2 issuances from Australian banks, offering a quoted margin of 183 basis points. Given BOQ’s solid credit standing and comparable credit rating curves, this margin is competitive, providing stable cash flows for investors, especially in a relatively stable interest rate environment. The discount margin also compares favorably with domestic banking players (e.g., WBC 6.095% 07/10/34 ’29, BBSW + 1.67%, with a discount margin of 145 basis points) but falls slightly short when compared to Kangaroo bond issuances of similar maturities (e.g., SAN 6.622% 07/17/34 ’29, BBSW + 2.25%, with a discount margin of 205 basis points).
Additionally, with Australia potentially set to phase out AT1 hybrid capital, the demand for Tier 2 instruments like BOQ’s subordinated notes is expected to grow. As banks replace AT1 with T2 and CET1 capital, these notes will likely benefit from stronger market demand, providing a more predictable and attractive option for investors seeking long-term, stable returns.