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ASB has borrowed $800 million from investors through a five-year bond, with the bank’s advertised five-year term deposit rate sitting above what the notes pay. The bond pays 4.782 per cent annually, while ASB’s current advertised five-year term deposit rate is 5 per cent.
The bank opened the offer to retail and institutional investors on Tuesday. It was seeking up to $100 million, with the potential to accept unlimited oversubscriptions at ASB’s discretion, and the final size came in well above the initial target.
The interest rate was fixed on Thursday at a margin of 0.73 per cent above the reference rate. That reference rate was the semi-annual mid-market swap rate for an interest rate swap running from the issue date to the maturity date. When the offer opened on Tuesday, the indicative margin was given as a range of 0.70 per cent to 0.73 per cent a year.
The notes are unsecured and unsubordinated medium-term notes, and the interest rate is fixed for the full five years. ASB has said the money raised will go towards general corporate purposes.
The bonds are due to be issued on Thursday, November 19. They can be traded on the NZX debt market from Friday, November 20, and are set to mature on November 19, 2031.
They are expected to carry credit ratings in line with ASB’s own: AA- from S&P Global Ratings and Aa3 from Moody’s.
The issue sits alongside ASB’s other wholesale funding channels. The wider NZ Banking Group raises money through short-term commercial paper programmes in multiple currencies, each with an aggregate limit of USD7 billion, and through medium-term note programmes, including a joint programme with CBA with a limit of USD70 billion and a US programme with a limit of USD10 billion. It also issues covered bonds under a EUR7 billion programme, which carries the regulatory constraint that the assets of the Covered Bond Trust may not exceed 10 per cent of the total assets of the ASB Banking Group. Domestic bonds are issued into the New Zealand market in NZD.
For a business weighing up where to park cash, the bond’s 4.782 per cent annual return sits below the 5 per cent ASB advertises on a five-year term deposit. The bond differs in that it is tradeable on the NZX debt market from November 20, so an investor who wants out before maturity can sell the notes rather than wait. A term deposit generally has to be held to term to earn the advertised rate.
The bond is also unsecured and unsubordinated, which places holders alongside ASB’s other unsubordinated creditors rather than ahead of them. The expected AA- and Aa3 ratings match the bank’s own, so the notes carry the same credit standing as the issuer.
For ASB, the issue locks in five years of funding at a fixed rate. The 0.73 per cent margin over the swap rate is the price the bank pays for that certainty, and it was set at the top of the range indicated when the offer opened.
The NZ Banking Group’s funding programmes are large and run in several currencies. The commercial paper programmes are short-term borrowing, while the medium-term note and covered bond programmes fund longer periods. The domestic bond market is one channel among several, and this issue adds NZD 800 million of five-year money to the mix.
The notes mature on November 19, 2031, and trade on the NZX debt market from the following day.
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