NatWest raising dollars 300m new capital: Issue will lock in attractive rates and protect against appreciating dollar

NATIONAL Westminster Bank yesterday said it intended to issue dollars 300m of exchangeable capital securities, to lock in favourable long-term interest rates and increase its flexibility on capital.

The securities may be exchanged at any time, at the option of the bank, into 12 million non-cumulative dollar preference shares of dollars 25 each.

Analysts estimated that from the institutional investor's point of view the bond would yield just under 8 per cent, while the preference shares, once exchanged, would yield just under 9 per cent. The issue is priced relatively high because it is exchangeable at the bank's option, which could be a drawback for investors.

This type of issue is a relatively rare event for UK banks, though NatWest issued a similar pounds 200m sterling-based issue last year.

The bonds will qualify as upper tier 2 capital, which is mainly comprised of bonds, when they are issued. But the preference shares will qualify as tier 1 capital, or equity capital, when they are exchanged.

Richard Goeltz, group chief financial officer at NatWest, said: 'We believe current long-term interest rates are particularly attractive. This issue will enable us to lock those rates in whilst also providing additional flexibility in the management of our capital.'

Denominated in dollars, it would also help to protect against appreciation of the dollar against sterling.

Neil Baker, banking analyst with Credit Lyonnais Laing, said that both NatWest and Barclays would ideally like to boost their tier 1 capital ratios above 6 per cent, from their current 5.6 per cent, which is already above the international minimum. This issue would help NatWest to achieve that.