ANZ Banking Group Limited 4.5% Tier 2 10.25NC5.25 SGD

Shawn Sng  |   24 Aug 2022  |    296 views

ANZ has announced the issuance of Tier 2 10.25NC5.25 subordinated notes at a final price guidance of 4.5%. These bonds have a non-callable date of 5.25 years and a maturity date after 10.25 years at 2 December 2032. If the bonds are not called on 2 December 2027 (5.25 years), the bonds will be reset at the prevailing 5 years SORA-OIS plus the initial spread of 1.743%. Do note that these bonds come with a conversion or write-off feature where if a non-viability trigger event were to occur, these bonds will be converted into ordinary shares of Australia and New Zealand Banking Group Limited (ANZBGL) or written off if the conversion has not been effected within the five business days of the non-viability trigger event. A non-viability trigger event is considered when a written determination from Australian Prudential Regulation Authority (APRA) deems that the conversion or write-off of relevant securities is necessary for the issuance. Or if there is a determination by APRA notifying ANZBGL in writing, that without a capital injection from the public sector, ANZGBL would become non-viable, whichever is earlier. Early redemption of these bonds will be subject to the approval of APRA. These notes have a semi-annual coupon payment on 2nd June and 2nd December each year with the first payment commencing on 2 December 2022.

 

ANZ is an Australian multinational banking and financial service company headquartered in Melbourne, Victoria, with a market cap of AUD 65.79bn as of 24 August 2022. ANZ provides retail, commercial and private banking to their customers through their branch network, business centres, ATMs and digital and mobile banking applications. The group is listed on the Australian Stock Exchange (ticker: ANZ) and has a credit rating of Aa3/AA-/A+ (Moody’s/S&P/Fitch). The expected rating for these bonds are Baa1/BBB+/A- (Moody’s/S&P/Fitch).

 

In 1H2022, ANZ’s total income increased by approx. 6% YoY from AUD 8.4bn in 1H2021 to AUD 8.9bn in 1H2022. The investment cost to facilitate the bank’s growth, productivity and simplification of its processes has resulted in a rise in total investment cost which translates to an increase in total expenses by 6% YoY from AUD4.5bn in 1H21 to AUD 4.8bn 1H2022. ANZ’s APRA level 2 CET1 ratio stood at 11.5% and 18% on an internationally comparable basis. The leverage ratio is at 5.2% with a liquidity coverage ratio of 132%.

 

Lastly, these bonds are considered as subordinated notes which rank lower than senior debt issuance but constitute ANZ’s tier 2 capital. Thus, in the event of financial distress, these bonds will be in a better position in terms of the repayment hierarchy as they are one notch above AT1 issuance.

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