The National Australia Bank has become the first Australian bank to raise new capital in the credit crunch, without a deal to finance. 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, NAB has decided that reinforcing its capital base might be better done sooner rather than later.
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.
NAB revealed this morning that it was raising the cash to strengthen its balance sheet and ”take advantage of organic growth opportunities”.
The NAB said today:
This initiative is consistent with NAB’s previously announced intention to raise capital equivalent to its next two Dividend Reinvestment Plan (DRP) shortfalls.
More favourable market conditions have enabled NAB to accelerate its capital management plans and accordingly, upon successful completion of the placement, NAB will no longer proceed with its underwrite of the DRP for the 2008 final dividend.,” the bank said in its statement to the ASX.
Following the placement, NAB will also offer retail shareholders the opportunity to participate in a non-underwritten share purchase plan (SPP) at the institutional placement price. The SPP will provide eligible ordinary shareholders on the register at 5.00pm on 13 November 2008 with the opportunity, without incurring brokerage or other transaction costs, to subscribe for up to A$10,000 worth of NAB ordinary shares (subject to obtaining expected relief from ASIC) . However, NAB will reserve the right to scale back applications under the SPP if total demand exceeds $250m. Further details of the SPP will be provided to eligible shareholders in due course.
The capital raising will result in NAB moving immediately to a Tier 1 ratio of approximately 8.0%.
ANZ can be expected to follow the NAB with capital raising of its own, seeing its earnings were hurt more than its peers in the September 30 year by bad and doubtful international and local debts.
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. A successful issue at $20 a share would see 10 million new shares issued.