ASIC Warns Against Hybrid Offers

The Australian Securities and Investment Commission has issued a warning on ‘dangerous’ hybrid offers. The warning follows after reports that large firms sold about $8 billion worth of hybrid securities and subordinated debts.

These large firms include Caltex, Tabcorp, Insurance Australia Group, and some of the country’s biggest banks.

The ASIC said these notes usually carry some equity-like risks and buyers should be wary. According to ASIC commissioner John Price, consumers have to understand the risks involved with hybrid securities.

Price also said that consumers should not be swayed just because household-name companies are promising high yields. He reiterated that many hybrid notes and securities can be risky investments.

Price also said that hybrid offers should be assessed very carefully and that consumers should seek professional and unbiased help to determine if these offers are suitable for them.

Although ASIC did not give any specific, industry sources said the announcement may have something to do with Crown opening its subordinated note issue.

Last Friday, the casino operator offered up $525 million. The figure was increased from $400 million after several institutions expressed interest.

The stockbroking industry has always been wary of hybrid notes. Experts said hybrids are risky because there have been many cases when investors have not been paid back. Companies can exercise the right to determine the timing of when the investments can be redeemed.

Many hybrids also take decades because investors can enjoy the returns. Price of hybrids can also decline and reach lower levels than what was originally paid for.

There have also been cases when the companies stopped paying the interests especially if the company’s financial standing has declined.