ANZ To Raise $2.5 Billion In New Capital

Post by Sharat on May 27, 2009 · Under Australian Economy, Capital Markets, Company News, Equities, Mergers & Acquistions, banking, investments · Comment

Australian retail banking major ANZ, the countries fourth largest lender says it intends to raise A$2.5 billion in fresh equity to finance its bid for troubled UK lender Royal Bank of Scotland’s Asian assets.

ANZ says the capital raising will occur through an institutional placement where investors will have the opportunity to purchase ANZ shares for $14.40 each, representing a 7.5 per cent discount to its previous close.

ANZ chief Mike Smith who on numerous occasions has put forward a strategy of turning ANZ into a “super regional” bank which earns 20 per cent of its revenues internationally needs to raise the funds to finance any bid for RBS assets and provide a cushion against a contracting economy with rising bad debts.

The institutional placement has been underwritten by Deutsche Bank AG, JPMorgan Chase & Co. and UBS AG. ANZ said it will also allow retail investors to buy shares but says it reserves the right to scale back individual applications if demand for shares is in excess of $350 million.

Last month ANZ reported a 28 per cent drop in half year profits after credit impairment charges leapt 98 per cent. In Monday’s statement the lender said charges for credit derivatives losses had declined by about A$400 million after tax since March 31, reflecting lower credit spreads globally and a stronger Australian dollar. That improvement has been “largely offset” by a reduction hedging gains.

ANZ’s stock price has rallied along with equities globally by 31 per cent since hitting its lows in February. Last month the lender confirmed that it was going to participate as a bidder for the Asian assets of UK banking giant RBS.

If ANZ is successful in its bid, it would go a long way towards helping ANZ chief Mike Smith reach his stated objective of delivering 20 per cent of ANZ’s revenues internationally.

ANZ has so far been ambiguous about which assets in Asia it is after. Many analysts have suggested it does not have the pockets to compete with larger rivals HSBC and Standard Chartered. In particular RBS’s India business however does look to have ANZ’s name on it. The Indian central bank and the country’s banking regulator, the Reserve Bank of India is philosophically opposed to a branch banking network being acquired by an international bank with an established network in India, which both HSBC and Standard Chartered already possess.

ANZ has said an acquisition would initially reduce earnings per share before contributing to profit in the medium term. The capital raising would fund both an acquisition and allow ANZ to maintain its Tier 1 capital ratio above its target range of 7.5 to 8.0 per cent.

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