Macquarie hybrid comes with a ‘health warning’

John Kavanagh Debt capital markets

The prospectus for Macquarie Group’s latest hybrid issue, Macquarie Group Capital Notes 4, comes with a “health warning”: if Labor’s franking credits policy change is enacted into law note holders will not be entitled to any adjustments to the amount of any distributions.

“Implementation of the proposed changes may adversely affect the returns you receive on your MCN4 and the market price and/or liquidity of MCN4 may also be impacted,” Macquarie says in the prospectus.

Labor proposes to abolish cash rebates for excess franking credits. Some investors, particularly retirees with their savings in self-managed superannuation funds, stand to lose significant amounts of income.

Franked distributions on hybrid securities would be affected in the same way as franked dividends on ordinary shares.

The margin on the Macquarie notes will be between 4.15 per cent and 4.35 per cent. Distributions are frankable and are expected to be franked at the same rate as dividends on Macquarie Group ordinary shares, which is 45 per cent.

Macquarie is seeking a minimum of A$500 million. The notes are fully paid, unsecured, subordinated, non-cumulative mandatorily convertible notes.

Macquarie can redeem some or all of the notes in September 2026, March 2027 or September 2027.
The Macquarie offer comes hot on the heels of NAB’s successful hybrid issue earlier this month. NAB increased its offer of NAB Capital Notes 3 from $750 million at launch to $1.65 billion.

NAB’s hybrids were priced at a margin of 4 per cent, with distributions expected to be fully franked, and with a call date of June 2026.