Australia's top lender NAB unveils nation's biggest rights offering ever, to float UK unit

National Australia Bank, the country's top lender by assets, on Thursday reported a 5.4 per cent rise in first-half cash earnings, meeting forecasts, and announced a A$5.5 billion (S$5.8 billion) rights issue as it looks to demerge and float its trou
National Australia Bank, the country's top lender by assets, on Thursday reported a 5.4 per cent rise in first-half cash earnings, meeting forecasts, and announced a A$5.5 billion (S$5.8 billion) rights issue as it looks to demerge and float its troubled British unit. -- PHOTO: BLOOMBERG 

SYDNEY (Bloomberg) - National Australia Bank said it plans to raise A$5.5 billion (S$5.8 billion) in the nation's biggest ever rights issue, as the lender boosts capital ahead of regulatory changes and an exit from its U.K. business.

The lender will offer 194 million new shares, equal to about 8 per cent of issued capital, at A$28.50 each, a 19 per cent discount to Wednesday's closing price. The lender said in a statement Thursday it plans to hand over as much as 80 per cent of its U.K. business to shareholders and sell the remainder through an initial public offering by the end of 2015.

The rights offer, the biggest for the Asia-Pacific region since 2010, takes the amount of equity raising announced by Australia's biggest lenders this week to about A$7.5 billion. The banks are girding themselves against the possibility of fresh regulations demanding higher capital buffers.

"National Australia is biting the bullet and getting ahead of the other banks in sprucing up its capital ratio," said Angus Gluskie, managing director at White Funds Management Pty in Sydney. "It's making progress on two fronts - it's U.K. exit and bolstering capital."

NAB shares have been halted from trading until May 12. Of its largest competitors, Westpac Banking Corp. lost 2.2 per cent as of 10:10 a.m. Sydney time on Thursday. Australia & New Zealand Banking Group sank 3 per cent and Commonwealth Bank of Australia dropped 2.3 per cent.

Westpac said Monday it would raise A$2 billion in view of regulatory changes, while ANZ said the following day it may raise as much as A$480 million.

The Australian Prudential Regulation Authority said in March it may impose extra capital requirements on higher-risk lenders as it works to contain risks from the nation's housing boom. The regulator in December urged lenders to limit growth in mortgages to property investors to 10 percent a year.

Thorburn told reporters the lender would work toward reducing growth in investor mortgages to 10 per cent.

The U.K. Prudential Regulation Authority has also told NAB to add £1.7 billion in capital to the U.K. unit ahead of the demerger, according to the statement.

The bank's pro-forma common-equity Tier 1 ratio, a measure of its ability to absorb future losses, was about 10 per cent including the impact of the capital raising and the U.K. separation, as at March 31, it said. Its capital raising is expected to reduce pro-forma cash earnings per share for the six months to March 31 by about 4.5 per cent, it said.

"This is obviously a very significant raising and clearly we believe we would rather go and take one step," Chief Executive Officer Andrew Thorburn told reporters in Sydney. "Going to the capital markets, given the state they are in now, strong and open, we think this is really the right thing to do."

Cash profit, which excludes one-time items, increased to A$3.32 billion in the six months ended March 31 from A$3.15 billion a year earlier, the Melbourne-based lender said.

NAB said it will pay a dividend of 99 cents a share, compared with analyst expectations for A$1.02.

Bad-debt charges were A$455 million from A$349 million six months earlier and A$528 million a year earlier. The bank's net interest margin, the difference between the interest it earned on loans and its cost of funds, was 1.92 per cent from 1.93 per cent six months earlier.