Hybrid securities are a type of investment that combine both debt (payment of a coupon) and equity (no maturity date or very long maturities) characteristics. They're a way for banks and companies to borrow money from investors while achieving a better treatment (from a regulatory, accounting or credit rating perspective) compared to more traditional debt instruments.
Hybrid securities typically promise to pay regular interest at rates usually well above those paid on bank term deposits and offer greater potential for appreciation than regular bonds.
However, unlike a bond, the amount and timing of interest payments may not be as certain. For instruments issued by banks, they may also be exposed to mandatory conversion into the issuer’s stock or write down.
Hybrids pay a fixed or floating rate of return, generally higher than bank term deposits and regular bonds, and payments often entitle investors to franking credits.