Risks and Rewards: Dominion’s New $500M Notes Face Interest Deferral and Credit Challenges

Dominion Income Notes 1 – A New Fixed Income Offering

Dominion Investment Group Limited has launched an offer for its Dominion Income Notes 1, a new series of unsecured, deferrable, redeemable floating rate notes. The offer aims to raise between $250 million and $500 million through the issuance of up to 5 million notes, each priced at $100. These notes are designed to provide investors with regular monthly income and are intended to be listed on the Australian Securities Exchange (ASX) under the ticker code "DMNHA".

The notes carry a floating interest rate benchmarked to the 1-month Bank Bill Swap Rate (BBSW) plus a margin of 3.00% per annum until the target repayment date in October 2031. Should the notes remain outstanding beyond this date, the margin increases by 1 percentage point to 4.00% per annum, reflecting a step-up feature to compensate investors for extended exposure.

Investment Strategy and Management

Proceeds from the offer will be invested in a diversified portfolio of debt instruments, including corporate bonds, structured credit, and bank capital securities. The portfolio will be actively managed by Dominion Investment Management Pty Ltd, a member of the Realm Group, which oversees more than A$10 billion in credit and fixed income assets. Realm’s investment approach combines macroeconomic analysis with detailed issuer-level due diligence, aiming to balance risk and return across public and private credit markets.

The initial portfolio is expected to include a mix of direct investments and units in Realm Managed Funds, with an indicative allocation emphasizing residential mortgage-backed securities (RMBS), asset-backed securities (ABS), subordinated debt, and bank capital instruments. The portfolio targets a minimum average credit rating of BB, with an aim to maintain a weighted average rating around BBB, balancing income generation with credit quality.

Key Features and Investor Protections

Dominion Income Notes 1 are unsecured and do not benefit from guarantees by the Manager or Realm Group entities. Interest payments are scheduled monthly but may be deferred if the underlying portfolio does not generate sufficient income, with deferred interest accruing at the same rate and payable when income allows. The notes have a maturity date in October 2032, with a target repayment date one year earlier, allowing the issuer discretion to redeem early.

To provide a capital buffer for noteholders, Realm Group entities will invest in the Issuer through equity shares and junior notes, which rank behind the Dominion Income Notes in the event of losses. This first loss buffer is designed to absorb initial losses and enhance the credit profile of the notes.

Offer Details and Eligibility

The offer is open exclusively to Australian residents within a defined target market, including wholesale investors and retail investors who receive personal financial advice confirming suitability. Applications must be made through brokers, with a minimum application size of $5,000. The offer is not underwritten and is subject to ASX approval for listing and quotation. If the minimum subscription of $250 million is not reached, the offer will be withdrawn and application monies refunded without interest.

Investors should be aware of the risks associated with the notes, including credit risk, liquidity risk, interest rate fluctuations, and potential conflicts of interest arising from the Manager’s role in both the Issuer and Realm Managed Funds. The Prospectus provides detailed disclosures on these risks and the governance framework overseeing the Issuer and Manager.