Capital raising a windfall for Bank of Queensland backers

Underwriters and sub-underwriters for Bank of Queensland’s $1.35bn capital raising will share paper profits of more than $50m.

BoQ chief executive George Frazis. Picture: Nick Cubbin

Underwriters for Bank of Queensland’s $1.35bn capital raising will share paper profits of more than $50m after a shortfall in subscriptions for the retail entitlement offer.

BoQ unveiled the raising last month to fund its $1.325bn purchase of ME Bank from a group of industry funds.

The regional bank revealed on Monday that almost $272m of stock would fall to the underwriters after eligible retail shareholders subscribed for only half their entitlements, despite the stock currently trading well above its $7.25 issue price.

Of BoQ’s 105,000 retail investors, about 93,000 own less than 5000 shares, with 60,000 holding less than 1000 shares.

Many of them are short of the spare cash to subscribe for more.

As a result, applications from existing retail shareholders totalled $336m, reflecting a take-up rate of about 50 per cent.

The total rate increased to 60 per cent after an oversubscription facility attracted $72m in further applications.

The remaining 37 million shares worth $272m will go to underwriters Goldman Sachs and UBS, as well as sub-underwriters for the raising.

The combined paper profit is almost $52m, with BoQ stock currently trading at $8.75, or $1.40 above the issue price.

The regional bank announced the ME Bank deal last month, proposing to raise $1bn in an underwritten entitlement offer, as well as $350m in an institutional placement, all at $7.35 a share.

Chief executive George Frazis said it was a defining acquisition that delivered scale, doubled the size of the retail bank and established geographic diversification.

“We are on track with our strategic transformation and we anticipate that the combination of the two businesses will enable us to accelerate our digital strategy ­towards a cloud-based, common digital retail bank technology platform,” Mr Frazis said.

The combination of BoQ and ME Bank will have total assets of $88bn, with total deposits of $56bn.

The acquisition price represents a multiple of 1.05 times ME Bank’s reported book value in 2020 and 11.9 times underlying earnings.

Annualised pre-tax synergy benefits of $70m-$80m are expected by year three, with three-quarters likely to be delivered by the end of the second year.

Pre-tax integration costs are forecast to be $130m-$140m. The majority will be incurred in the first two years.

Including full run-rate synergies, the deal is expected to add to BoQ’s earnings per share in the first year. It is also expected to add 100 basis points to the acquirer’s return on equity.

With the retail bank projected to double in size, its contribution to group earnings will surge from 36 per cent to more than half, as well as balance out BoQ’s presence on the east coast.

“BoQ’s digital transformation is well under way, and the acquisition of ME Bank is expected to accelerate the pathway to a scaled, common cloud-based digital retail bank technology platform,” Mr Frazis said.

“We believe that the benefits of a single platform are significant, but are largely underpinned by an ability to leverage global capability with evergreen upgrades via cloud software.”

Originally published as Capital raising a windfall for Bank of Queensland backers