CBA subordinated debt issue closes at $1.75bn

Commonwealth Bank has tapped the bond market. NCA NewsWire / Sarah Marshall

The CBA’s subordinated bond issue has closed at $1.75bn after receiving $3.46bn in demand.

The Australian bond market offering provides a yield of 6.775 per cent, with books opening on Monday for the direct, unsecured, subordinated bond.

The price is 245 basis points above the bank bill swap rate with a fixed and floating option.

Bond sources say a 15-year, non-call ten year bond with a fixed rate is unusual for the Australian market and likely comes after ANZ launched a similar bond about a month ago. It was likely launched after inquiry in the market.

CBA has a rating of Aa3, AA minus and A plus from Moody’s, S&P and Fitch respectively while the issue rating is Baa1, BBB plus and A minus from Moody’s, S&P and Fitch.

The raise is part of CBA’s domestic debt issuance program.

It is understood that CBA will now look to the US market to source more funds from bond investors.

Meanwhile, other Australian corporates may look to tap the bond market following Telstra’s successful raise last week.

Telstra raised $650m for its first Australian bond raise in almost six years, and it attracted $1.9bn in demand.

The five-year senior bond that settled on March 8 was 93 basis points above the bank bill swap rate, and the coupon was 4.9 per cent.

True corporate bonds in Australia are quite rare which is why the Telstra raise attracted so much demand, according to one expert.

Telstra is also a very high quality company.

Most groups that issue bonds in the Australian market are financial firms, leaving fund managers overweight with financials so other opportunities with reasonable yields become highly attractive.

Being the first non financial bond of the year made it important, as other groups would have been observing how it was received.

It was the first major Australian raise by Telstra since 2017, with Telstra launching a Euro bond in 2019.

The transaction was expected to be rated A2 by Moody’s and A minus by S&P and joint lead managers on the deal were ANZ, CBA, NAB and Westpac.

Telstra is set to lift mobile prices further in July as part of a yearly pricing ­review, and chief executive Vicki Brady flagged likely price rises to the company’s NBN plans as well.