ANZ has launched an issue of capital notes, seeking A$1 billion of funding, and as flagged last month, it will only accept applications from institutional investors and clients of syndicate brokers.
The bank expects the distribution rate for ANZ Capital Notes 7 to be the three-month bank bill swap rate plus a margin between 270 and 290 basis points. It expects to pay fully franked distributions.
Distributions are discretionary and unpaid distributions are non-cumulative.
The bank may elect to convert, redeem or resell some or all of the notes in March, June or September 2029. The mandatory conversion date is September 2031.
Despite concerns about rising bank funding costs, if ANZ is able to issue with its margin at the lower end of the range its pricing will be below other recent issues.
Suncorp issued hybrids in September last year at a margin of 290 bps and Latitude Financial Services issued at a margin of 475 bps.
In August, Macquarie Bank issued at a margin of 290 bps, with a first call date September 2028.
In February, CBA issued PERLS XIII Capital Notes, with a margin of 275 bps and a first call date of October 2026.
ANZ last issued in June last year, when it issued Capital Notes 6 with a margin of 300 bps and a first call date of March 2028.
ANZ has restricted distribution of Capital Notes 7 in response to the requirements of the new Design and Distribution Obligation. The prospectus is accompanied by a target market determination, as required under DDO – the first hybrid issue to include one.
The key provision is that all retail investors making new money applications and reinvestment applications must have received personal advice from a licensed professional adviser and must apply through their broker or adviser.
The offer includes a reinvestment offer for eligible Capital Notes 2 holders. Unlike in the past, security holders cannot apply directly to ANZ to reinvest.
The market will be watching with interest to see how the impact of DDO plays out: whether the restriction on distribution reduces take-up by retail investors, the main investor in hybrids; or whether, as has been suggested, institutional investors take up the issue and sell to retail investors at a profit on the secondary market once the securities are listed.
The offer will open on February 23.