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Thursday, 24 April 2014

BONDS: NAB raises US$1.25bn from covered debut

Two office workers chat at the National Australia Bank (NAB) building in central Sydney

Source: Reuters/Daniel Munoz

Two office workers chat at the National Australia Bank (NAB) building in central Sydney

National Australia Bank made a commendable debut in the US dollar covered bond market overnight with a US$1.25bn Reg S/144a five-year print that came in line with guidance at 100bp over mid swaps.

The new 2.0% June 20 2017s priced at 99.849 for a reoffer yield of 2.032%, 129.5bp wide of US Treasuries and equivalent to 133bp above BBSW.

Obvious comps for the issue are the ANZ and Westpac November 2016s, as well as the CBA March 2017s, which were seen at 95bp over swaps on the bid side at launch.

A local syndication manager away from the deal was impressed, not only with NAB’s ability to get the deal away in a whippy market, but also the terms achieved.

“Not only did NAB price very close to the Aussie majors’ US dollar curve, but the BBSW spread meant that NAB only paid a premium of 15bp–20bp over the level it would have priced in the domestic market,” he noted. 

Barclays, Deutsche Bank, HSBC, NAB and RBC Capital Markets arranged the latest issue from NAB, which has been the least active of the majors in the covered bond market so far.

Prior to its inaugural US-dollar deal, NAB had raised just A$2.83bn (US$2.8bn) equivalent – in euros, sterling and Norwegian kroner – versus around A$11.35bn, A$7.2bn and A$6.55bn equivalent from CBA, Westpac and ANZ, respectively.

As a result, NAB has plenty of room for further covered issuance before reaching the Australian authorities’ 8% cap on the percentage of bank assets that can be used as collateral. In NAB’s case, this limit is just over A$30bn.

NAB Group, which includes BNZ and Clydesdale Bank, has now raised A$19.6bn, or 93% of its approximate A$21bn funding requirement for fiscal year 2011/2012, which ends on September 30.

NAB alone has issued A$15.6bn versus its estimated A$17.0bn funding target.

On a more negative note, the new NAB deal adds to the cluster of Australian banks’ issuance of covered bonds that mature from November 2016 to mid-2017, including Suncorp’s recent A$1.1bn December 2016 print.

The amount maturing in this period now totals about A$22bn. The figure represents more than two thirds of Australia’s total covered bond supply, which could clearly boost refinancing costs during that period.

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