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 financials.
"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 comparable.
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 different investors.
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 notes.