Westpac plans to exit SFIs

Oksana Patron

27 September 2022

Westpac has proposed to exit its Self-Funding Instalments (SFIs) following the changes in the company’s strategy which will put more focus on its core banking in Australia and New Zealand.

The move would require Westpac, which is the issuer of SFIs, to put a vote to holders that would include an accelerated completion date and customer offer, according to its announcement made to the Australian Securities Exchange (ASX).

SFIs are a structured investment product offering investors and superannuation funds the potential to gain geared exposure while investing in Australian Blue Chip companies and indices, without the risk of a margin call.

According to ASX definition, SFIs are a variation on the ordinary instalment structure where, in contrast to ordinary instalments, the dividends from the underlying share are retained by the issuer and used to reduce the loan balance of a SFI. Investors are still entitled to franking credits, which may reduce their tax liability which is of particular importance for self-managed super funds (SMSFs).

Westpac SFIs gave investors leveraged exposure to ASX-listed securities with no risk of margin call, it said

“The wind-down in Westpac SFIs commenced in November 2020 when we ceased issuing new Westpac SFIs and moved to “bid only” support for Westpac SFI trading,” the firm said in the announcement.

As a result, Westpac would offer customers a reduction in their loan amount of 25% to support the exit.

The group said that there were currently less than $6 million of loans outstanding in respect of its SFIs held by approximately 90 customers.

To exit SFIs, Westpac would need to put resolutions to a holder vote to enable it to amend the terms of issue to bring forward the completion date for all its SFIs to 17 November.

A holder meeting has been scheduled for 18 October and the group presently intends to declare an extraordinary event if the resolutions are passed, but it reserves the right to do so, it said.