Treasury says about 15 banks are in the running for about six roles in its syndicate to manage the Crown's first inflation indexed bond issue in 11 years. The successful bank applicants should be announced within about three weeks.
Philip Combes, Deputy Secretary of the Treasury and Head of the New Zealand Debt Management Office (NZDMO), told interest.co.nz a request for proposal had been sent to about 15 potential members of the banking syndicate. Issuing debt via a syndication is a new step for the NZDMO, which typically issues bonds via a tender process.
It had yet to be decided how many banks would be in the syndicate, Combes said, but the NZDMO was looking closely at the model adopted by the Australian Office of Financial Management in its consumer price indexed (CPI) bond programme. Last year the Australians appointed Deutsche Bank, RBS Group and UBS as joint lead managers of its A$4 billion programme with Citigroup, JP Morgan and Westpac co-managers.
“We’re keeping our options open but a reasonable starting point would be a similar panel size to that,” Combes said.
That meant five or six of the 15 or so banks asked to express an interest were ultimately likely to form the syndicate.
Speaking on Friday, Combes said the NZDMO expected to get expressions of interest back from the banks within two weeks. After that it was likely to announce who was in the syndicate within about a week.
Combes told interest.co.nz in July the first issue in a CPI linked bond programme was likely in October or November. He now says November is looking more likely.
NZDMO hasn’t yet finalized the size of the bond programme and will discuss this with its banking syndicate once the appointments are made. However, Combes says the size could be between NZ$800 million and NZ$1 billion based on the A$4 billion size of the Australian issue.
Combes says the inflation linked bonds should be available to retail investors if banks buy them and sell them down in retail sized parcels.
The NZDMO flagged possible CPI linked bond issues in May’s Budget as part of an issuance of up to NZ$12.5 billion worth of bonds in the 2010-11 financial year. It hasn’t issued such bonds since 1999 with just one remaining on issue with a face value of about NZ$1.17 billion. It matures in February 2016. The move comes as Treasury forecasts inflation to almost treble to 5.9% next year and follows the government’s Capital Markets Development Taskforce recommendation and Australia’s reintroduction of indexed debt last year.
In May Transpower became the first New Zealand company to issue CPI linked bonds. Its 10-year bonds pay interest of 4.115% on the principal on each quarterly payment date with the principal ratcheting up by reference to CPI meaning, therefore, the cash interest amount payable is also increased.
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