Challenger Ltd has converted 277,380 outstanding Challenger Capital Notes ASX:CGFPA (CCN1) into Challenger ordinary shares in what is a rare event in Australian capital markets.
Under the mandatory conversion provisions Challenger said in a statement it issued 3,822,281 fully paid Ordinary Shares at a price of approximately $7.33 per fully paid Ordinary Share. This represented just over eight percent of the hybrid issue.
The holders of Challenger Capital Notes 1 received 13.7804 Ordinary Shares for each Challenger Capital Notes 1 held. Challenger applied a discount of one percent on conversion in favour of noteholders.
In March 2020, Challenger announced that it had withdrawn plans to issue new capital notes due to what it said were investment market conditions being significantly disrupted by the Coronoavirus pandemic. This impacted the company’s ability to launch a replacement capital notes offer which part proceeds would have been used to redeem CCN1.
Challenger had the right to repurchase the Notes on any quarterly distribution payment date after 25 May 2020 and up to 25 May 2022 with APRA approval.
Challenger issued Challenger Capital Notes 3 in November 2020 where it planned to use proceeds to repurchase CCN1 but because the call date had passed noteholders were not required to participate.
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Head of Fixed Income at Bell Potter Securities Barry Ziegler said that the other instance of this happening in his memory was when the ANZ exchanged ANZ Stapled Exchangeable Preferred Securities (ANZ StEPS) into ANZ ordinary shares in 2008.
“These were not the new style capital notes but rather a preference share,” Ziegler said.
“The ANZ could have gone either way in issuing shares or paying cash but went with the share option.”
The ANZ StEPS was a stapled security consisting of an interest paying, unsecured note issued by ANZ and a Preference Share issued by ANZ not paying dividends whilst it was stapled to a note.
