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Kiwibank sets up European commercial paper programme, eyes another Aussie bond issue

Kiwibank sets up European commercial paper programme, eyes another Aussie bond issue

By Gareth Vaughan

Kiwibank has established a European commercial paper programme and is hoping to tap the Australian debt market again soon for at least A$250 million.

Paul Brock, Kiwibank's CEO, told interest.co.nz that the New Zealand Post subsidiary had set up a European commercial paper programme within the last month as part of its drive to diversify funding sources.  He declined to say how big the debt funding programme was.

"It’s basically a programme that has been put in place so we can draw down what we need (when we need it) so I’m not going to go into specifics about what numbers," Brock said.

"But there is a programme in place there which is useful for us particularly for the shorter (term) funding."

Despite the ongoing European sovereign debt crisis Brock said it had been fairly straight forward for Kiwibank to establish the programme.

"These are quite normal programmes that banks do and Kiwibank was seen in a good light up there."

Staff from the state owned bank also did an Australian investor roadshow recently as they eye another bond offer across the Tasman. Kiwibank last year raised A$250 million in five-year bonds in Australia in the bank's first foray into the international wholesale bond market. Kiwibank also raised NZ$150 million through a domestic perpetual preference share issue in May.

"Certainly we see the Australian market as an opportunity from a wholesale debt capital markets point of view," said Brock.

"We’ve had a lot of positive feedback. We’ll just see how the market pricing and conditions pan out," Brock added. "At the moment I think we need to get the right dynamics of volume and price to make it worth doing."

He said Kiwibank would probably target an issue "a little bit larger" than last year's. Brock also noted that this time the bank wouldn't have the backing of a government guarantee, with the Crown Wholesale Funding Guarantee Scheme having ended, meaning Kiwibank would be fund raising offshore "in its own right."

Kiwibank's drive to diversify its funding comes after the introduction by the Reserve Bank of the core funding ratio (CFR) on April 1. The CFR sets out that banks must source at least 65% of their funding from retail deposits and wholesale funding sources with durations of at least one year. The central bank wants to increase the CFR to 75% by about the middle of 2012 to offset New Zealand banks' previous reliance on international wholesale, or 'hot' money, markets.

Brock's predecessor, Sam Knowles, noted the introduction of the CFR meant Kiwibank's rival Australian owned banks - ANZ, ASB, BNZ and Westpac - were now competing harder for retail deposits meaning New Zealand owned financial institutions could only compete by going offshore to source funding.

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1 Comments

Well at least it is just bonds, not covered bonds.

No GG either but I suppose it will have implied GG with the bank Govt owned.

Good luck to them.

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