Westpac New Zealand has appointed four lead managers for a 1 billion euros (NZ$1.75 billion) covered bond issue which the bank aims to launch in mid-February.
The issue will be the first in a 5 billion euros covered bond programme announced by Westpac late last year and will make it the second New Zealand bank, after BNZ, to issue covered bonds.
A Westpac spokesman confirmed the bank has appointed Barclays, BNP, UBS and Westpac Institutional Bank to manage its initial covered bond issue. Westpac staff will undertake a roadshow meeting potential European investors in early February with the actual issue of the bonds expected to take place in mid-February. The Westpac group is due to release a first quarter trading update on February 15.
The spokesman said Westpac had not yet settled on what term the bonds will be sold for. Covered bond terms usually range from five to 10 years.
Covered bonds are senior debt instruments backed by a dedicated group of home loans known as a “cover pool.” So if the issuing bank defaults, the assets in the cover pool are carved off from the issuer’s other assets solely for the benefit of the covered bondholders. The Reserve Bank says it’s comfortable with banks issuing covered bonds worth up to 10% of their total assets, based on the value of assets securitised.
Westpac's total assets stood at NZ$55.2 billion at September 30, meaning currently it could issue covered bonds worth up to NZ$5.52 billion. The bank says it has no plans to go beyond the Reserve Bank's 10% threshold, with the covered bonds programme taking place over several years during which it hopes to grow its total assets.
In the first covered bond issue by a New Zealand bank, BNZ raised NZ$425 million from domestic institutional investors last June. It then raised 1 billion euros from selling covered bonds to European institutional investors in November through an issue of seven year covered bonds paying out a fixed interest rate of just 3.125% per annum.
Aside from being a source of cheap funding, BNZ and Westpac say they are issuing covered bonds to help meet the Reserve Bank's core funding ratio (CFR). Introduced on April 1, the CFR sets out that banks must secure 65% of their funding from retail deposits and wholesale sources with maturities of more than one year. The central bank aims to lift the CFR to 75% during 2012.
Both ANZ New Zealand and ASB are also considering issuing covered bonds.
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