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NAB Completes Landmark Funding Deal
Australian banking major, National Australia Bank (NAB) completed a landmark funding deal by becoming the first Australian issuer to raise debt on international credit markets without the use of the Australian sovereign guarantee.
On Friday NAB raised 500 million Pound Sterling. The deal was expensive from a funding perspective with NAB having to pay a coupon of 5.735 per cent, or 230 basis points over LIBOR for five year unsecured notes. However the deal itself was a sign that credit markets continue on their long journey towards normalcy.
The deal was significant because it was the first of its kind since Lehman Brothers collapsed, showing that a market which had been frozen had thawed enough for a transaction to occur.
“Our view was we had to put our toe in the water and tap this market again. The price is substantially more expensive than levels prevailing before the financial crisis, but it’s better than we expected.” an NAB spokesman said.
Governments globally, including that of Australia introduced sovereign guarantees on the funding of their banks as global credit markets all but ceased to function in the wake of the collapse of Lehman Brothers.
The Big Four have raised $104.1 billion in guaranteed debt since last October. Before Friday’s offshore deal by NAB, the majors had started to test local credit markets without the guarantee and had done so successfully. The majors are now paying a 70basis point fee to wrap their debt issues with a gilt-edged AAA rating.
A senior bank treasury source said it was still cheaper to raise debt internationally with the sovereign guarantee, even with the 70 basis point fee, than without it.
The NAB spokesman said that pricing for the Sterling issue had been helped by relatively healthy investor demand, with 159 British and European institutions subscribing to the deal. The spokesman went on to make the point that NAB was the issuer and not its UK unit Clydesdale Bank.
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