ASB to pay 5.25% on 'complex financial products that are not suitable for many investors'

ASB to pay 5.25% on 'complex financial products that are not suitable for many investors'

ASB Bank Limited (“ASB”) today announced that it has successfully closed the bookbuild for its offer (“Offer”) of subordinated unsecured convertible notes (“ASB Notes 2”). The Offer size has been set at NZ$375 million.

The Offer opens today and is expected to close on  November 25. See Gareth Vaughan's earlier article on this issue here.

ASB said the initial interest rate for the ASB Notes 2 will be 5.25% per annum, which reflects a margin of 2.80% per annum over the New Zealand dollar 5 year swap rate. The interest rate will be reset on 15 December 2021 for a further five years as a fixed interest rate equal to the sum of the margin and the New Zealand dollar 5 year swap rate on that date.

Interest is scheduled to be paid quarterly in arrears and is subject to ASB satisfying the solvency condition. Any interest that is not paid because ASB has not satisfied the solvency condition will also earn interest.

ASB Notes 2 will have a term of approximately 10 years but may be repaid earlier in certain circumstances. ASB Notes 2 will be converted into ordinary shares in Commonwealth Bank of Australia ABN 48 123 123 124 (“CBA”) or written off if a non-viability trigger event occurs. A non-viability trigger event can occur if (among other things) ASB or CBA experience severe financial difficulty. CBA does not guarantee ASB or ASB Notes 2.

ASB will pay early bird interest at 3.00% per annum (less any applicable withholding taxes) on application monies for applications that are accepted, unless those application monies are returned for any reason.

The scheduled issue date for the ASB Notes 2 is 30 November 2016 and are expected to be quoted on the NZX Debt Market.

ASB says the investment is "riskier than a bank deposit".

"ASB Notes 2 are complex financial products that are not suitable for many investors. You should read the product disclosure statement for the ASB Notes 2 in full. If you do not fully understand how they work or the risks associated with them, you should not invest in them. You can seek advice from a financial adviser to help you make an investment decision," ASB said. 

ASB's product disclosure statement for the offer is here.

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ASB says the investment is "riskier than a bank deposit".

The former designed to absorb the first round of bank asset mark downs, the later to underwrite the balance. Hard to recommend either given the official laissez faire attitude to unconstrained debt expansion and unsecured bank depositors exposure to underwriting it without due risk compensation. Attention paid to correcting this issue would certainly reign in dubious bank lending practices.