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Westpac (ASX:WBC) just sealed a record bond deal. What could this mean for shareholders?

Why are Westpac shares beating the ASX 200 so far today?
The post Westpac (ASX:WBC) just sealed a record bond deal. What could this mean for shareholders? appeared first on The Motley Fool Australia. –

The Westpac Banking Corp (ASX: WBC) share price is having a pretty decent day of trading so far this Monday. At the time of writing, Westpac shares are currently up a healthy 0.77% to $22.86 a share. That’s a meaningful outperformance of the S&P/ASX 200 Index (ASX: XJO), which is currently up by 0.36% at 7,470 points.

Westpac is also outperforming all 3 of its ASX big four banking rivals so far today. The National Australia Bank Ltd. (ASX: NAB) share price is the only other major bank currently in the green today. NAB shares are currently up by 0.15% at $29.24 a share. And in contrast to Westpac’s solid performance, both the Commonwealth Bank of Australia (ASX: CBA) and the Australia and New Zealand Banking Group Ltd (ASX: ANZ) share prices are in the red, by 0.33% and 0.18% respectively.

So what is going on with Westpac that is giving investors so much confidence in this ASX bank today?

Westpac share price rises amid new bond sale

Well, one possible reason could be the news that Westpac has just secured a US$5.5 billion bond placement. According to reporting in the Australian Financial Review (AFR) today, Westpac has raised US$5.5 billion “via the sale of three, seven, 15 and 20 year SEC registered bonds in a five tranche deal”.

Issuing bonds is one of the major ways a company can raise additional funding for its business. It involves the issuance of a bond, which an investor buys with the expectation of regular interest payments.

Until now, Westpac had spent roughly the last year relying on funding provided through the Reserve Bank of Australia’s (RBA) term funding facility, which was initiated as an emergency response to the COVID-19 pandemic. The report states that this deal “[marks] Westpac’s return to more normal levels of wholesale funding” after a period of relying on the RBA.

But if you think this deal marks the end of ultra-cheap credit for the ASX banks, hold your horses. Westpac will still be paying rock-bottom interest rates on these new bonds, with the 20-year bonds offering fixed interest investors an interest rate that is 1.23% higher than that of the US government’s treasury bills.

So why is this good for Westpac? The report states that “this week’s debt deal shows Westpac should have little trouble going back to public markets for its funding”. And that would be unequivically good news for shareholders. The cheaper and easier Westpac’s access to new funding is, the greasier its internal wheels get.

At the current Westpac share price, this ASX bank has a market capitalisation of $83.94 billion, with a dividend yield of 5.16%.

The post Westpac (ASX:WBC) just sealed a record bond deal. What could this mean for shareholders? appeared first on The Motley Fool Australia.

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More reading

Morgans just bumped up its target for the Westpac (ASX:WBC) share price. Here’s why

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These were the worst performing ASX 200 shares last week

Motley Fool contributor Sebastian Bowen owns shares of National Australia Bank Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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