The Aa2/AA-/AA- rated issuer is due to hit the dollar market
with a 10-year subordinated Tier 2 bond led by itself,
Citigroup, Goldman Sachs and UBS.
Investors told IFR on Tuesday that the deal will be a
10-year bullet whose notes convert to equity if regulators deem
the bank is at the point of non-viability (PONV).
Australian banks are believed to have spent months sounding
out underwriters and investors on the best Tier 2 structure
would be for the Yankee bond market, meaning ANZ's deal will
provide a crucial pricing reference Australia's other three big
banks - CBA, National Australia Bank and Westpac.
The offering will also be the first offshore Basel
III-compliant issue by an Australian bank.
Investors said they were excited by the deal, especially
those accounts keen to buy high-beta bank product because they
are unwilling or unable to purchase the Additional Tier 1 trades
from European banks and the perpetual preferreds from US
"I think I am already accepting the risks in the marketplace
by buying senior unsecured bonds, so I might as well buy the
subordinated securities and get paid a premium for taking that
risk," said one investor.
Several buyside accounts were looking for initial price
thoughts to fall somewhere between 175bp-187.5bp, with one
saying 180bp was a good place to start.
None of the underwriters would comment, but several
investors said they were being steered toward HSBC's US$2bn
4.25% (Aa3/A+/AA-) 10-year bullet transaction as the best
That deal priced last week at T+165bp, which one investor
thought indicated a pickup of about 50bp over where he
calculated fair value on a new HSBC 10-year senior unsecured.
ANZ trades about 10bp through HSBC, putting fair value on a
new 10-year senior unsecured at around 100-105bp, according to
Having a conversion to equity should be worth a few basis
points in savings for ANZ, said one investor, but he added that
those savings would be offset by the extra spread required
because it is a new structure.
One investor felt accounts should be compensated for the
fact that equity conversion is contractual at the PONV, whereas
it is not in some other comparables in the market.
Yankee bank subordinated bonds usually trade about 1.6-times
to 2.0-times wider in spread than a borrower's senior unsecured