Australia's third-largest bank is set to grow a little bigger as it looks to tap shareholders on the shoulder for an extra $3 billion to bolster its balance sheet.
Australia and New Zealand Banking Group (ASX: ANZ) is undertaking an underwritten share placement to institutional investors to raise $2.5 billion and will give retail investors a chance to buy up to $500 million through a share placement plan.
The price of the new share offer will be determined by an accelerated book-build that will be completed later today but it won't be lower than $30.95.
The stock is in a trading halt and it closed yesterday at $32.58, which implies that the capital raising will be done at no more than a 5% discount. The capital raising price will be the same for both institutional and retail investors.
ANZ is seen to have the weakest funding position among the Big Four banks with some analysts estimating it needs about $7 billion in fresh funding to meet new minimum capital requirement regulations imposed by the Australian Prudential Regulation Authority (APRA).
In spite of this, ANZ's chief executive Mike Smith tried to play down the need for a capital injection in May, describing those who were pushing for the bank to raise capital as "lemmings".
The bank is also in the process of selling its car and boat financing business Esanda and the Australian Financial Review reported that management is hoping to get a $1.5 billion offer although that might be a stretch as the number of bidders for the unit has halved to two after private equity firms Carlyle Group and KKR & Co withdrew from the auction.
ANZ's capital raising move follows Westpac Banking Corp's (ASX: WBC) $1.25 billion hybrid note offer and National Australia Bank Ltd.'s (ASX: NAB) $5.5 billion new share sale.
All eyes are now on what Commonwealth Bank of Australia (ASX: CBA) will do as analysts think it will need around $7 billion in new capital and CLSA thinks it is the most exposed of the Big Four to Western Australia's residential property market, which is feeling the effects of the mining slowdown.
ANZ is my least favourite of the big banks as it has the highest consensus growth expectations on the back of its Asian expansion.
But I think many are underestimating the risks in Asia and there's also the issue of the changing of the guards at ANZ as Mike Smith is believed to be nearing retirement.
On that basis, I don't think it's a good idea to participate in ANZ's capital raising and I see more value in NAB.
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