ASB is seeking to raise up to $400 million in a fixed rate, 10-year retail note offer.
The offer, coming at the start of what's expected to be a rising interest rate cycle, will be priced at a margin over the five year swap rate.
The bank is looking to borrow up to $300 million through the issue of subordinated, unsecured debt securities, plus up to $100 million of oversubscriptions.
The opening date for the offer is March 25. The interest rate will apply until a call option date of June 15, 2019, and will be set and announced on or before March 25 after a bookbuild process. Interest will be paid quarterly in arrears.
"The margin will not change over the term of the ASB Subordinated Notes," ASB says.
The maturity date is June 15, 2024, but the notes could be repaid earlier.
Tier 2 Capital
ASB says these subordinated notes will be treated by it as Tier 2 Capital, and "in certain circumstances" will be exchanged for ordinary shares in its parent Commonwealth Bank of Australia. It notes CBA doesn't guarantee ASB or the ASB subordinated notes.
In terms of what the proceeds will be used for ASB says the offer will raise Tier 2 Capital to satisfy ASB and CBA's regulatory capital requirements and help maintain the diversity of their sources and types of capital funding. The notes will be classified as debt in ASB's financial statements.
Standard & Poor’s has assigned the notes a BBB+ credit rating, which is four notches below ASB's own AA- rating. See credit ratings explained here.
Not for everyone
In a note included in ASB's investment statement the Financial Markets Authority says the ASB notes are complex instruments and might not be suitable for many investors.
"These ASB Notes carry similar risks to shares in ASB but do not have the same opportunity for growth as shares," the FMA says. "If ASB or CBA experiences severe financial difficulty, the ASB notes may be exchanged for ordinary shares of CBA or written off."
The notes will be issued at $1 each, with minimum applications set at $5,000 and $1,000 thereafter. ASB has applied to have them listed on the NZX debt market.
The offer's arrangers are CBA and Goldman Sachs. The five joint lead managers are ASB Securities, Macquarie Capital, Goldman Sachs, Deutsche Craigs and Forsyth Barr.