Macquarie sets price guidance on A$ Tier 1 issue

(For the latest Australia and New Zealand bond news, double
click on [AU/CRD] and then double click on the ID number)

SYDNEY, May 29 (Reuters) - Macquarie Group Ltd (MQG.AX),
Australia's top investment bank, has set preliminary pricing on
its up to A$600 million ($577 million) Tier 1 Capital issue at
310 to 360 basis points over the five-year swap, a joint lead
said.

The issue, launched late on Wednesday and called Macquarie
Convertible Preference Securities (CPS), is targeting retail
and institutional investors.

"Pricing is fair but the issuer is not Macquarie Bank, it's
the non-operating company where disclosure is not as good,"
said one Sydney-based institutional investor looking at the
offer.

The CPS issuer, Macquarie Capital Loans Management Ltd, is
part of Macquarie Group Ltd, a non-operating holding company
formed in November.

Macquarie Group replaced the company's previous listing as
Macquarie Bank Ltd in a new structure aimed at overcoming
capital constraints on the group's substantial non-banking
business.

Macquarie Group and Macquarie Bank now run two distinct
funding, capital and liquidity management programmes.

Macquarie Group provides funding for the non-banking group,
while Macquarie Bank manages funding for the banking group.

Another fund manager looking at the CPS said the margin
would need to be at the top end of the guidance range to draw
his interest.

"With Suncorp's at 320 bps, the Macquarie offer would need
to price at the higher end," he said.

On May 13, Australia's sixth-largest bank Suncorp-Metway
(SUN.AX) raised A$700 million of Tier 1 securities at 320 basis
points. The Suncorp offer was rated A- by S&P and A2 by
Moody's, or two notches higher than Macquarie's BBB rating by
S&P and Baa1 by Moody's.

Another fund manager said he was concerned at the lack of
investor protection in the structure of the Macquarie CPS
offer. "I will not look at the deal if it stays as it is," he
said.

The Macquarie CPS is part of a relatively new type of Tier
1 capital, called non-innovative residual Tier 1, that offers a
cheaper form of capital compared with ordinary equity.

Banks are required to maintain a certain level of
ultra-liquid Tier 1 capital as a cushion to protect bank
deposits.

To qualify as non-innovative residual Tier 1 capital, the
securities must be perpetual and cannot include a coupon that
would step-up.

Macquarie is the third Australian institution to sell this
type of capital in recent months, following Suncorp and St.
George Bank SGB.AX.

The CPS consist of perpetual fixed rate, non-cumulative,
convertible preference securities paying unfranked
distributions. The two key differences between Macquarie's
issue and those sold by Suncorp and St. George's are the format
and the dividends' tax implications.

Macquarie opted for fixed rate securities, rather than
standard floating rate securities, based on the view that the
Australian economy is at the peak of the interest rate cycle.

Fixed rate notes would also appeal more to traditional fund
managers who typically run portfolios with fixed rate
benchmarks, said an investor.

Macquarie CPS will pay unfranked distributions, a structure
that typically appeals to fund managers who have a hard time
taking advantage of the franking benefits, the investor said.

They will mandatorily convert into ordinary shares of
Macquarie on June 30, 2013 with a 1.00 percent discount.

The securities are expected to be rated BBB by S&P and and
Baa1 by Moody's.

Citigroup, Goldman Sachs JBWere, JPMorgan, Macquarie,
nabCapital, UBS and Westpac Institutional Bank are joint leads
managers and joint bookrunners.

Key dates of the offer:

Roadshow: May 28-30

Bookbuild: June 3

Announcement of margin: June 5

Closing of offer: July 3

Issue date: July 7

Normal trading start: July 10

First distribution pay: Dec. 31 2008

Mandatory conversion: June 30 2013
($1=A$1.04)
(Reporting by Cecile Lefort)