Hybrids Market Feels Strain

THE crisis gripping the nation's mortgage fund industry has spread to Australia's $26 billion hybrid securities market, with investors selling out of the listed securities as they switch into high-yielding bank deposits.

The selldown in the hybrid market is also threatening to force a number of companies to rethink planned capital raisings, particularly banks considering issuing the securities as a means to bolster their balance sheets.

Hybrids have the characteristics of both debt and equity. The securities, which pay interest, are generally regarded as defensive assets, which means investors usually flock to them during sharemarket downturns.

But, as with mortgage funds, the guarantee on bank deposits has seen investors exit hybrids, pushing down prices.

"It is an easy transition for someone to redeem their money out of a managed fund or sell their hybrid securities and put it in the bank," said Robert Camilleri, a senior manager of credit funds at Aviva Investors.

Even hybrid shares offered by some of the biggest banks have taken a hammering, trading at a deep discount to their $100 issue price.

National Australia Bank's hybrids yesterday closed at $76.50, while hybrid shares issued by Macquarie Group were trading at $61 despite paying an interest rate of 7.8 per cent.

Babcock