SBS launches 10-year subordinated redeemable share issue; 'a much higher yielding product than anything we currently offer'

SBS Bank's offering an initial 6.75% interest rate for the first five years on its new 'continuous issuance' bond, the SBS Capital Bond, with an initial interest rate of 6.75%.

The 6.75% will be on offer till the end of this month. Minimum investment is $10,000. Interest is paid quarterly. The 'limited disclosure statement' is available here.

It has a BBB- rating from ratings agency Fitch, while SBS Bank itself is rated BBB by Fitch. Specifically, Fitch describes its BBB rating as:

"Good credit quality: Adequate capacity for payment of financial commitments but adverse business or economic conditions are more likely to impair the capacity of the obligor to meet its financial commitments." The likelihood of default is given at 1 in 30. 

SBS Bank's chief risk officer Mark McLean says the SBS Capital Bond "is a much higher yielding product than anything we currently offer".

"As the SBS Capital Bond will be available through our retail channels we exclude any intermediaries, meaning any associated costs are also reduced, allowing SBS to offer the product at a great interest rate."

The bank says the product is a 10-year subordinated redeemable share, will be available on an on-going basis to New Zealand investors. It has an initial interest rate of 6.75% until 31 October 2017, which is fixed for the first five years, then a quarterly floating rate will apply.

McLean said the product demonstrated another tangible benefit for SBS Bank’s customers and formed part of the Bank’s growth and expansion strategy.

“Over the past 12-months we have experienced solid growth and the launch of the SBS Capital Bond will enable SBS to continue to raise capital now and into the future. It’s a real win-win for both SBS and investors.”

The subordinated redeemable share will qualify as Tier 2 Capital for SBS Bank under the Reserve Bank of New Zealand requirements. It has been available since Monday 2 October 2017.

The shares are 'loss-absorbing', which SBS describes thus:

The SBS Capital Bonds are loss-absorbing which means that if we encounter financial difficulty, the SBS Capital Bonds may be written-off in part or in full. Any Principal Amount which is written-off will not be repaid to you by us and no further Interest will be paid by us on that amount. This could occur if there is a Write-down Event (which occurs by direction of the RBNZ or a statutory manager). 

SBS Bank says the shares are not quoted on any stock exchange and there is no established market to sell them. The Bonds are subject to SBS Bank’s right to repay on or after the five-year anniversary. There is no right for a holder to redeem before maturity.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment or click on the "Register" link below a comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.