Prime times down under

IFR Top 250 Borrowers 2008
5 min read

It has been a good year so far for Australia and New Zealand Bank (ANZ). It has raised US$4.5bn from five public issues in the international markets and managed what was, at the time, the largest Samurai out of Australia, as well as Australia's largest domestic bond sale and largest capital market debt issue by an Australian bank.

But what stands out is its emphasis not on quantity but on quality: the country's third largest bank is less interested in issuing huge volumes into the domestic market than selling into a number of markets.

"We have had a strategy of maximising diversification for many years," said Luke Davidson, head of funding for ANZ. ANZ was the first Australian bank to sell a fixed rate Euro, back in 2000, and has also issued a new benchmark transaction each year since. "Regular benchmark issuance promotes price transparency and allows an issuer to demonstrate commitment to a market and thereby build long-term relationships with investors."

This strategy has found favour among investors. "ANZ is looking at new structures, Samurai, Uridashi bonds and private placements. It is being terribly creative," said one.

The two standout deals for the bank, which is rated Aa1/AA/AA-, have been a stunning ¥135.8bn (US$1.3bn) three tranche Samurai in early March, followed up six weeks later by an A$1.75bn (US$1.66bn) five-year domestic bond. The latter remains the largest deal out of Australia this year.

The Samurai, at the time the biggest ever from down under, was brought through joint leads Daiwa SMBC, Mizuho and Nikko Citi. The deal was composed of a ¥37.1bn three-year fixed-rate note carrying a 1.77% coupon, coming out at 80bp over Libor. The five-year part of the deal was split into ¥27bn of fixed paper with a 2.07% coupon (Libor plus 95bp), and a ¥71.7bn floater paying 95bp over three-month yen Libor.

Australian banks have found the door open to them in Japan thanks to a lack of sub-prime exposure. "The Australian banks have been largely immune to the problems that have affected their peer banks globally," said Davidson. When ANZ stated that it had no direct sub-prime exposure during its three-day Japan roadshow from February 26, it was clear that it would be a good deal.

The A$1.75bn five-year self-led deal was perfectly executed, and the longest tenor seen in Australia until that time. Books opened on Wednesday April 16 and closed at 4pm the same day. Tone in the Australian market had improved and the Australian iTraxx index had contracted from 220bp a fortnight before the deal to 116bp/119bp when it priced.

The deal's A tranche – made up of A$445m floating-rate notes – priced at BBSW plus 128bp, while the B tranche of A$905m fixed-rate paper, with a coupon of 8.5%, came at 128bp over Australian mid-swaps.

Demand for the paper from offshore investors was sufficiently strong to facilitate rumours of a reopening the next morning, which later that day proved accurate, leading to a further A$150m tap. On April 30 a reverse inquiry brought the April 22, 2013s up to A$1.75bn.

The pricing on this deal was marginally more expensive than the Samurai: the Libor plus 95bp ANZ paid in Japan for the five year floater equates to around BBSW plus 110bp – around 18bp in from Australian funding costs.

"It is not all about the price," said a banker close to the deal. "There are limits to how many times you can tap any one market, quite apart from a desire to diversify geography and investor types.”

The bank also tapped the US market several times: at the end of January it sold US$3.75bn five-year extendible bonds notes via JPMorgan and HSBC, becoming the largest capital market debt issue by an Australian bank. The notes sold at an initial maturity of 13 months priced at Libor plus 21bp. It revisited at the end of May, selling US$70m 5-year bonds via sole lead Barcap, with bonds priced at three month Libor plus 85bp.

ANZ has also tapped Europe, issuing €2bn (US$3.1bn) in 5.25% five-year bonds in early May via Barcap and Credit Suisse. Pricing tightened from initial guidance, set at mid-swaps plus 95bp thanks to strong demand. The order book hit A$3.3bn and the paper finally priced at 93bp over mid swaps.

The bank has to raise A$4bn before its year end on September 30, but this, it said, is under control: half will probably come from private placement, and half from public bond sales. Unsurprisingly the bank is already looking towards 2009 funding. "The strategy will be similar to this year with a continued focus on diversification and extending ANZ's yield curves in major currencies through periodic fixed rate issuance," said Davidson.