ANZ Closes Landmark Funding Deal

Post by Sharat on May 6, 2009 · Under Australian Economy, Capital Markets, Company News, banking, interest rates · 1 Comment

In a further sign that credit markets have reached a thaw and investors are relaxing ANZ on Tuesday completed a bond offering that came without a sovereign guarantee attached to it and attracted reasonable levels of interest from both domestic and international investors.

ANZ yesterday priced its first non-guaranteed debt issue at a spread of 128 basis points above the bank bill swap rate for a three year term.

The Australian banking major said there was strong interest in the deal with participation in the deal coming from more than 57 local and overseas institutions, which placed orders for more than A$1.4 billion in debt for a deal sized at $1 billion

ANZ said that it had managed to price the issue cheaper than it would have, had it invoked the sovereign guarantee.

Bank funding costs on wholesale money markets, both domestically and to some extent internationally have clearly started to fall, which means most banks will be in better positions to pass on official cuts in interest rates to their customers.

The Herald Sun reported that RBA governor Glenn Stevens yesterday said banks’ funding costs in the wholesale market were starting to ease.

The deal which comprised a fixed and floating rate tranche, with the floating rate costing 128 basis points more than the 90 day bank bill swap rate is still expensive compared to prior to financial crisis. Banks were paying about 30 basis points less in the year before the financial crisis hit

The fixed and floating rate notes issued under the ANZ’s program were priced 1.28 per cent above the 90-day bank bill rate in July 2007.

An ANZ spokesman said had it used the using the sovereign guarantee the deal would have cost the bank even more.

“We think it would have cost us 1.3 per cent above the bank bill swap rate to complete this program. This is positive news for the bank, but we have to bear in mind that we were paying sometimes only 18 basis points above the swap rate on three-year paper before the crisis.” the spokesman said.

With yesterday’s debt raising, ANZ has followed Commonwealth Bank and National Australian Bank into the non-guaranteed term funding market.

NAB and CBA earlier this month raised $2.2 billion and $1.2 billion respectively, with each issue priced at 130 basis points above swap.

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