Example: how many ordinary shares will I receive on mandatory conversion?

This example of how many ordinary shares in the bank or its listed holding company are typically issued on mandatory conversion of a Hybrid is for illustrative purposes only and the actual number of ordinary shares issued may be higher or lower than this example.

In this summary, we have used the following assumptions:

• the average price for the bank’s ordinary shares over the 20 days on which those shares traded immediately prior to the issue of the Hybrid is $25. This is known as the “Issue Date VWAP”.
• the face value of the Hybrid is $100.
• a discount of 1%. The discount generally reflects the estimated costs of selling the shares on the ASX  .

Step 1. Calculate the number of shares to be issued on conversion

The conversion mechanics require the average share price (or VWAP) at conversion to be determined, which for a mandatory conversion, is over the 20 days on which shares are traded immediately prior to conversion.

For this example, a VWAP of $25 will be used. Any conversion discount is applied to the VWAP.

The number of ordinary shares to be issued is then calculated by dividing the face value of the Hybrid by the discounted VWAP.

Step 2. Determine the impact of the conversion conditions

There are often a number of complex conversion conditions to mandatory conversion set out in the terms of a Hybrid. Typically they require that at, or just prior to, conversion:

• the ordinary shares of the bank must be listed; and
• the price of the bank’s ordinary shares have not fallen significantly (generally, the ordinary share price must be greater than approximately 50% of the Issue Date VWAP at the relevant time).

If any of these conditions are not satisfied then conversion is deferred until the next distribution payment date on which the conditions are satisfied.

These conditions effectively ensure that a maximum conversion number does not apply on mandatory conversion to limit the number of shares which can be issued. This protects the holder from suffering loss following conversion on the scheduled conversion date.

In this example, where the Issue Date VWAP was $25 and the price of the bank’s ordinary shares was $12.50 or less at the time of the proposed conversion, the conversion conditions would operate to prevent conversion from occurring.