ANZ Holdings (New Zealand) Ltd has successfully priced an AUD 800 million Perpetual Redeemable Subordinated Notes, with a non-callable period of six years. The notes offer a floating annual coupon of 3-month BBSW plus 295 basis points, payable quarterly. The issuance garnered strong demand, attracting an order book of AUD 3.65 billion, which was scaled back to 22% due to oversubscription.
A Unique and Innovative Structure
This issuance stands out due to its non-traditional structure, distinguishing itself from the typical Additional Tier 1 or Tier 2 capital instruments commonly issued by financial institutions. Unlike traditional Tier 2 or Additional Tier 1 (AT1) capital, these notes do not qualify as regulatory capital under the standards of either APRA or the RBNZ. Instead, they serve a specific funding purpose, supporting the acquisition of ANZ Bank NZ 2024-2 Preference Shares, which is junior to this new issuance.
Additionally, these Notes are not convertible into shares, and there are no non-viability triggers in the structure, further differentiating them from many hybrid securities that financial institutions often issue. This structure provides investors with a more traditional bond-like instrument.
Issuer Background: Not Your Typical Bank
A key differentiator of this issuance is the issuer itself. ANZ Holdings (New Zealand) Ltd is an intermediate, non-operating holding company and not an authorized deposit-taking institution (ADI) under the Australian Banking Act, nor is it a registered bank under New Zealand law. As such, these Notes are a reflection of the issuer’s structure as a holding company with assets primarily in investments, including its ownership of ANZ Bank New Zealand.
Because the issuer is not a traditional bank, investors should understand the structural subordination involved. In case of liquidation, the claims of Noteholders would rank ahead of junior instruments, like ordinary shares and preference shares, but behind the senior creditors of ANZ Bank New Zealand.
Attractive Coupon, Redemption Flexibility, and Cash Payments
The Notes feature a floating interest rate based on 3-month BBSW plus 295 basis points, providing investors with the potential to capture higher yields in a rising interest rate environment. Furthermore, unlike some hybrid securities, these Notes will pay all coupon payments in full cash, with no franking credits applied.
However, the interest payments are non-cumulative and discretionary, which means that if the issuer chooses not to pay interest due to not meeting certain conditions, investors are not entitled to recover those missed payments later.
The Notes are perpetual, meaning they have no fixed maturity date, providing long-term exposure to ANZ Holdings (New Zealand) Ltd. However, the issuer retains the option to redeem the Notes starting from October 2030, adding a level of flexibility for the issuer but leaving investors with uncertainty about when or if redemption will occur.
Conclusion
ANZ Holdings (New Zealand) Ltd’s latest issuance offers a distinctive and sophisticated structure, providing exposure to ANZ’s New Zealand operations through a holding company vehicle. It presents an attractive opportunity for investors seeking higher yields, albeit with an understanding of the increased risks due to the lack of regulatory capital treatment and the structural subordination involved. With no conversion into shares, no non-viability triggers, and cash coupon payments, this issuance presents a more straightforward investment. The strong initial reception from the market, as reflected in the oversubscribed order book, underscores the demand for such innovative financial products.