The real estate group is offering a rarely used structure that provides franked income to eligible investors and promises a strong yield. However, credit rating agencies classify the security as debt, which could increase pressure on Lendlease’s balance sheet.
The ASX-listed company, with a market value of about $3.5 billion, is marketing the hybrid notes through a roadshow across the region. The securities are technically perpetual subordinated notes, featuring a call option in three years. This means Lendlease is likely to repay investors at that point to avoid higher interest payments. The Australian Taxation Office treats the securities as equity for tax purposes, making the franking credits available, while credit agencies consider them debt, potentially pushing up reported leverage.
These notes are estimated to deliver a grossed-up yield of about 8.9%, made up of a 6.2% cash return and the value of franking credits. This blend could be especially appealing to income-focused Australian investors who prioritise after-tax returns. Despite the tax benefits, the debt classification means the securities will not help reduce official debt levels, unlike other hybrids that are often treated as equity.
This deal is part of a wider change in Australia’s fixed income market, as regulatory shifts have reduced the use of traditional bank hybrids. Lendlease is among several companies meeting demand for yield without issuing retail-focused securities on the ASX. Instead, the company is targeting institutional investors and high-net-worth individuals through broker networks.
More broadly, Lendlease is undergoing a strategic shift. It is refocusing on its core strengths in development and construction in Australia and aims to sell $2.8 billion worth of assets over the next two years. By issuing these hybrids, the company gains funding flexibility in the short term without substantial dilution of equity or control. Still, with a credit rating not far above junk status and a mixed performance history, investor confidence remains uncertain.
Some analysts believe Lendlease shares are undervalued, trading well below book value and at a low earnings multiple compared to peers. However, inconsistent financial results have made investors cautious. While the hybrid issue gives the company some breathing room as it works through its turnaround, Lendlease will ultimately have to show results to restore market trust and reduce its debt load.
