Can a AT1 instrument of a bank issued below par qualifying as equity instrument for accounting purposes (IFRS adopter).
AT1 are hybrid contract issued by banks that can be included in the prudential own funds.
in general can an accounting equity instrument be issued below or above par?
IAS 32 Equity definition Banks AT1
Re: IAS 32 Equity definition Banks AT1
yep, equity instrument can be issued below or above par
the key is to look for contractual obligation to deliver cash or other financial assets
https://ifrscommunity.com/knowledge-bas ... vs-equity/
https://ifrscommunity.com/knowledge-bas ... nstruments
the key is to look for contractual obligation to deliver cash or other financial assets
https://ifrscommunity.com/knowledge-bas ... vs-equity/
https://ifrscommunity.com/knowledge-bas ... nstruments
Re: IAS 32 Equity definition Banks AT1
equity can't be issued below par in UK law, if of interest
in such as case you just reduce the par value....
in such as case you just reduce the par value....
Re: IAS 32 Equity definition Banks AT1
thanks, I guess such a rule is quite common to avoid various shenanigans!
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accounting219
- Posts: 6
- Joined: 12 Sep 2022, 11:15
Re: IAS 32 Equity definition Banks AT1
many thanks. Very helpful.
What I struggle to understand is the implication on equity value in the balance sheet (can be called carrying value?) when AT1 instruments are issued below par.
I mean, this AT1 instruments are hybrid contracts with features similar to bond (can be redeemed at discretion of the issuer) and equity (not obligation to pay interest, subordination etc).
If I issue nominal 100 and paid 90, the value recorded is 90. Correct?
Assuming the above, the equity value of the instrument (if and when redeemed, and they are usually redeemed after 5 - 7 years) will be kept at 90 up to the call? (it doesn't work as amortized cost). It is also true that, contrary to the bonds, there's no obligation to redeem at par (bonds have a date of expiration), as they will call the price at market value (both the issue price and redeem price will reflect market condition).
On top of that, other little question on FX effect. If I issue in dollar (assuming reporting currency euro), shall I reflect the FX changes in the equity value (using reporting conversion rate) or the equity value will always remain the conversion rate at issue date?
Many thanks in advance for your help and sharing of your expertise
What I struggle to understand is the implication on equity value in the balance sheet (can be called carrying value?) when AT1 instruments are issued below par.
I mean, this AT1 instruments are hybrid contracts with features similar to bond (can be redeemed at discretion of the issuer) and equity (not obligation to pay interest, subordination etc).
If I issue nominal 100 and paid 90, the value recorded is 90. Correct?
Assuming the above, the equity value of the instrument (if and when redeemed, and they are usually redeemed after 5 - 7 years) will be kept at 90 up to the call? (it doesn't work as amortized cost). It is also true that, contrary to the bonds, there's no obligation to redeem at par (bonds have a date of expiration), as they will call the price at market value (both the issue price and redeem price will reflect market condition).
On top of that, other little question on FX effect. If I issue in dollar (assuming reporting currency euro), shall I reflect the FX changes in the equity value (using reporting conversion rate) or the equity value will always remain the conversion rate at issue date?
Many thanks in advance for your help and sharing of your expertise
Re: IAS 32 Equity definition Banks AT1
This seems to be a compound instrument where you need to recognise debt and equity components separately. Definitely a complex area. Read this as an intro and good luck 
https://ifrscommunity.com/knowledge-bas ... nstruments
https://ifrscommunity.com/knowledge-bas ... nstruments