A new form of capital: mutual equity interests

APRA has published draft amendments to APS 111 which allow for the issue of mutual equity interests by a mutually owned ADI.

APRA is proposing to allow mutual ADIs to issue Additional Tier 1 or Tier 2 capital instruments that could convert to Common Equity Tier 1 capital if the non-viability provisions are triggered.

Unlike listed public companies, conversion into ordinary shares is not possible for mutuals.

The conditions for the instrument will include the requirement for mutual equity interests to provide no voting rights (other than as required under the Corporations Act) and to limit both the claim of mutual equity interest holders on any surplus of a failed mutual ADI and the amounts that can be paid by way of dividends to these holders.

The proposal is open for consultation until 15 November 2013.

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