National Australia Bank Limited (NABHA)

By Jason Fittler

NABHA is a stapled security.

The issuer is National Australia Bank Limited, a financial services group that provides a range of banking and financial services including wealth management throughout Australia, New Zealand, Asia, United Kingdom and USA.

These securities pay a quarterly non-cumulative unfranked distribution at a margin of 1.25% above the 90-day bank bill rate. 

It has no maturity date and can therefore be only be repaid with cash for its face value. 

Given its perpetual nature, NABHA tends to experience greater price swings than other major bank hybrids. It also tends to pay a better yield than most other major bank hybrids.

The risk with this type of security is the fact it is perpetual as such limiting the scope for when you may receive the return of your capital. This also affects the price of the investment and therefore the yield you receive.

Currently with the NABHA trading around $70 the running yield is 5.43%. Keep in mind that the interest rate is variable and will move up and down depending on the 90-Day bank bill rate.

The kicker with this investment is due to the changes in regards to what is now considered Tier 1 capital.

When these notes were first issues in 1999 they were considered Tier 1 capital under the then international capital rules. However, since then the GFC and a reassessment of what is now regarded Tier 1 capital the NABHA’s have lost this status. Over the next 10 years they will progressively loss their Tier 1 status and ultimately be redeemed.

Keeping in mind that the NABHA’s rank before ordinary shareholders and the recently issued NABPA’s in regards to dividends. This means that if for some reason NAB could not pay the interest on the NABHA’s then the rules do not allow ordinary shareholders or NABPA holders to receive a dividend until the NABHA holders have received four quarterly dividends.  It would also have an effect on the ability of NAB to raise capital. 

Now there is no guarantee that any of this will happen and in fact I expect that NAB is well funded to ensure that it does not. But at the same time the NABHA’s are looking like more trouble than they are worth for NAB, with NAB being fully capitalised at present they may look to redeem these investments much the same as Bank of Queensland has done with their similar investment recently.

The yield on the NABHA is better than bank deposits and variable. They are trading at a 30% discount to face value and there is a good chance that they will be redeemed sooner rather than later.

For the balance investors these would fit nicely into your portfolio with steady income and a good capital gain at some point.

For more information on NABHA please contact us on 07 4771 4577.