Commonwealth Bank drops price, scale of share sale

Wednesday 17th December 2008

Commonwealth Bank of Australia, the nation's biggest provider of home loans, relaunched a share sale, dropping the price and reducing the amount by A$450 million after announcing that bad loans would be higher than expected.

The bank had its stock halted from trading "pending finalization of the share placement." Yesterday CBA said it had completed the sale, managed by Merrill Lynch, of shares at A$27 apiece, raising A$2 billion.

The shares are now being offered at A$26 apiece, raising about A$1.65 billion, in a sale managed by UBS, according to Reuters and Bloomberg, which cited institutions involved in the sale. That amounts to a 10.8% discount to the stock price immediately before the sale.

In announcing the sale was completed yesterday, CBA said it expects credit conditions to deteriorate. "The full-year loan impairment expense to gross loans and acceptances is now expected to be around 60 basis points, with the majority in the first half," it said.

The PERLS II securities, which are listed on the ASX, can be redeemed for cash at the rollover date of March 16 and Commonwealth Bank said yesterday it doesn't intend to offer reset terms.

Raising funds to redeem the securities is "simple and efficient," chief financial officer David Craig said. "Given uncertain equity market conditions we consider it prudent to do this now."

The lender said bad debts may rise to 0.6% of total loans, from the 0.5% rate it forecast last month. Demands on the bank's balance sheet are expected to remain strong into 2009 as international banks reduce their exposure to the Australian domestic market, it said.

By Jonathan Underhill

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