The local hybrid market is set to come alight.
Street Talk understands local issuance will kick off as early as next week and the smart money is on Commonwealth Bank of Australia's Colonial leading the charge.
Colonial has a subordinated note inching closer to a March 31 call date.
Sources suggested, however, the bank's desire to bolster its tier one capital would see Colonial and CBA opt to issue a hybrid rather than roll over its subordinated notes (which are classified as tier two capital).
The timing would be interesting though, coming on the cusp of profit reporting season and CBA's interim results due to be handed down mid-February. The bank could opt for a cleansing statement if it were to pull the trigger ahead of results.
CBA and Goldman Sachs were the lead arranger and bookrunners on that Colonial note in 2012, while Citigroup, Evans & Partners and Royal Bank of Scotland were also on the ticket.
Other companies that have subordinated debt coming up for renewal include Tabcorp, while in June there are ANZ Banking Group and Westpac Banking Corp.
Funds management and annuities group Challenger has flagged plans for additional tier one capital notes, so executives there will be weighing their options too.
Large issuers will also have to keenly price hybrid issuance with an eye to how other notes are trading in the secondary market.
Analysis by Mason Stevens this month noted that prices on short-term bank hybrids may be "artificially high" as holders attempted to gain preferential allocations on any possible refinancing issues.
Their research outlined that new issues had consistently traded at premiums following listing in the last six months.
Insurance Australia Group executed the last chunky local hybrid, ruling off a $404 million issue in December.
Last year, local investors digested a string of hybrid offers from the big banks.
They included ANZ Banking Group passing the tin around for $1.6 billion after National Australia Bank and Westpac Banking Corp raised $1.35 billion and $1.45 billion respectively through the sale of new hybrids. Analysts have in the past two months pared their expectations for bank equity raisings in 2017 on the back on more stringent capital requirements offshore and domestically.
