Morningstar has recommended that ANZ shareholders participate in the bank’s A$3.5 billion equity raising, saying it is priced at a “material discount” to its fair value estimate for the bank.

ANZ is raising new capital to go towards funding its $4.9 billion acquisition of Suncorp Bank.

The offer is a fully underwritten one-for-15 renounceable entitlement, priced at $18.90 a share.

This is a 12.7 per cent discount to ANZ’s closing price on Friday, 15 July, and a 12 per cent discount to the “theoretical ex-rights price” of $21.47.

The institutional offer opened on Monday and the trading in retail entitlements starts on Thursday.

ANZ said the financial impact of the acquisition would be “EPS neutral pre-synergies”. Cost synergy benefits of $260 million a year are expected in years four to six after completion. 

In addition, there are potential capital synergies to be achieved when Suncorp Bank moves from the standardised to the internal ratings-based approach to capital adequacy.

Morningstar said the $18.90 offer is a 39 per cent discount to its fair value estimate of $31 a share.

It is positive about the deal because it will give ANZ scale in areas where it trails the other major banks. It is forecasting earnings per share accretion of 4 percent in 2024/25.

It is less confident about ANZ’s promised cost savings, saying the $260 million represents 3 per cent of forecast 2025/26 operating expenses, which could easily be absorbed by inflation and reinvestment to fend off competition.