BARCLAYS gave investors a generous price on the launch of its $2bn (£1.2bn) contingent convertible (coco) bond yesterday, a cautious plan to ensure strong trading with the relatively new capital instrument.
The bank is paying 8.25 per cent for the instrument, which it issued as part of its plan to raise capital and improve its leverage position.
The issue is thought to have been heavily over-subscribed, but the bank stuck with a low price to allow the instrument to rise in secondary market trading, making future issuance more attractive to buyers.
The instrument features a trigger point, so if the bank’s core capital ratio falls below seven per cent the bond converts into equity.
In an effort to avoid diluting existing shareholders, they will be allowed to buy the new shares if they wish, potentially giving the coco investors a mix of cash and shares.
It differs to previous Barclays cocos, as earlier investors are wiped out at the seven per cent trigger point. Barclays is expected to issue more cocos soon – its leverage plan says it will raise up to £2bn with the instruments, allowing it to raise roughly another $1bn by mid-2014.