NAB Prices US Dollar Bond Issue

Post by Sharat on January 6, 2009 · Under Capital Markets, banking · Comment

National Australia Bank, Australia’s largest bank by assets has priced a three year US Dollar Bond issue guaranteed by the Australian Federal Government. The deal priced at between 85 to 90 basis points over mid-swaps is being managed by HSBC, Merrill Lynch and RBC Capital Markets. NAB has not yet announced how much it plans to raise.

NAB is the first Australian financial institution to sell Government guaranteed bonds this year. The Australian Government in November last year implemented a Federal guarantee for Australian financial institutions wanting to raise funding on wholesale international money and credit markets.

The guarantee was largely in response to the credit crisis and European governments implementing similar guarantees for their banks and financial institutions. The four major Australian banks have more than taken advantage of the guarantee, raising more than US$23 billion in guaranteed bonds across the globe, with the vast majority denominated in U.S. and Australian dollars.

In December, NAB also privately placed US$ 555 million of government guaranteed debt in the Eurobond market. That deal was managed by Daiwa and had a maturity of three years and was priced at 75 basis points over Libor.

Federally backed bonds are rated triple A by both major credit ratings agencies S&P and Moody’s. Investors find the bonds extremely attractive since they offer significantly higher returns than sovereign debt which comes with exactly the same risk rating.

Banking analysts estimate that the Australian Big Four banking majors have a A$ 100 billion a year funding programme, which means that the NAB issue is likely to be followed a number of similar bond issues by NAB’s domestic rivals as spreads over treasuries tighten.

Last month Australia & New Zealand Banking Group Ltd., Australia’s fourth-largest bank, issued US$ 1.9 billion of three-year government-backed bonds priced at 211 basis points over U.S. Treasuries, according to Bloomberg data. The notes traded at 134 basis points above the U.S. benchmark yesterday, Bank of America Corp. prices show, reflecting the fact that funding costs for Australian issuers and indeed in credit markets in general continue to fall.

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