ANZ Perpetual Preference Shares

[GTM 3442]

https://www.nzx.com/announcements/427300

ANZ PPS offer indicative pricing and offer open
4/3/2024, 8:33 am OFFER

ANZ Bank New Zealand Limited (ANZ) has announced an offer of up to NZ$250 million (with the ability to accept unlimited oversubscriptions at ANZ’s discretion) of perpetual preference shares (PPS) to New Zealand investors.

The offer opens today, 4 March 2024, and is expected to close at 11.00am on 8 March 2024.

The PPS will constitute Additional Tier 1 Capital for ANZ’s regulatory capital requirements. The PPS will not have a fixed term and will remain on issue indefinitely if not redeemed by ANZ. If certain conditions are met, ANZ may redeem the PPS on the First Optional Redemption Date (19 March 2030) and each quarterly Scheduled Distribution Payment Date after that date, or at any time for tax or regulatory reasons.

The indicative Issue Margin for the PPS is 3.25% - 3.45% per annum. The actual Issue Margin (which may be above or below the indicative Issue Margin range) and the Distribution Rate that will apply until the First Optional Redemption Date will be set following a bookbuild process on 8 March 2024 and will be announced by ANZ via NZX shortly after the completion of that process. Distributions are expected to comprise a cash amount and imputation credits.

Distributions on the PPS are scheduled to be paid quarterly but are discretionary and will not be paid if certain conditions are not met. If a distribution is not paid for any reason, ANZ is under no obligation to pay that distribution at a later date.

The PPS are expected to be issued on 19 March 2024.

There is no public pool for the offer, with all of the PPS being reserved for clients of the Joint Lead Managers (details below), NZX Participants and other approved financial intermediaries.

Investors can register their interest by contacting any of the Joint Lead Managers or their usual financial advice provider. Copies of the Limited Disclosure Document (LDD), ANZ's roadshow presentation and the indicative terms sheet are available from these same parties.

Details of the offer and the PPS are contained in the LDD, available on the online Disclose Register maintained by the Companies Office (www.disclose-register.companiesoffice.govt.nz/ offer number OFR13716).

This offer is being made in accordance with the Financial Markets Conduct Act 2013.

Tempting, but there are a couple of caveats in there:
"If a distribution is not paid for any reason, ANZ is under no obligation to pay that distribution at a later date." , plus the likely secondary market pricing after the first reset, and the likely credit rating of BBB

[NZSilver]

How do.these work? Seem to have a few differences to standard bonds. A little bit weary about

Distributions on the PPS are scheduled to be paid quarterly but are discretionary and will not be paid if certain conditions are not met. If a distribution is not paid for any reason, ANZ is under no obligation to pay that distribution at a later date.

Also once it comes off fixed rate, if interest rates are lower are we likely to see capital depreciation?

Thanks

[Grimy]

Hi NZ Silver. If you look on page 2 of the NZDX forum/markets, have a look at the thread ANZ Capital Notes Issue March 2015 (either the whole thread or the last 2 or 3 pages) to see what has happened in the past and what people saw as pros and cons.
I have held ANBHB and currently hold ANBHC PPS and have applied for some ANBHD PPS today.
They are Tier 1 capital for the bank, so not bonds, although when things go to plan I feel personally that they can be used as/instead of bonds. You need to understand and be comfortable with the terms of the offer.
As I am in the investing for income stage I like the reasonable rate and the quarterly payments.
With covid the ANBHB ones were not repaid when expected (the RB instructed banks not to pay out on their capital), and I had to wait about 18 months past the expected repayment of capital date to get the principal sum back. Still got the quarterly payments, but the return dropped as after the first repayment date the % return was reset every 3 months from memory. But that was exceptional circumstances/times. If the repayment date had been a couple of months earlier, I would have had the capital returned when expected.
Generally, it seems the banks repay at the first reset date - in the case of ANBHD, that will be in 6 years.
I look at it that yes, the PPS rank behind pretty much everything/everyone else if the bank fails. But if the ANZ fails then we've probably got more to worry about anyway....
Once the government decides on a deposit guarantee scheme, then term deposits and bonds will be a much safer bet, but I'm comfortable with an allocation to Tier 1 capital PPS investments.

[NZSilver]

Thankyou grimy for the insights,

That's handy to know they usually pay them back, so you can in some ways think of it as a 6 year bond. Agree if they go under we will be in more trouble and that will be the least of our worries.

Again thanks for the response, much appreciated

[Lego_Man]

Thankyou grimy for the insights,

That's handy to know they usually pay them back, so you can in some ways think of it as a 6 year bond. Agree if they go under we will be in more trouble and that will be the least of our worries.

Again thanks for the response, much appreciated

I know it might be obvious to some, but note they also have a "dividend stopper" provision, so the bank can't pay a dividend to general equity holders before resuming payments on these. However they are not obliged to catch up on cumulative missed payments.

[Bjauck]

…
Once the government decides on a deposit guarantee scheme, then term deposits and bonds will be a much safer bet, but I'm comfortable with an allocation to Tier 1 capital PPS investments.
Thanks for your post. Will the deposit guarantee scheme cover bonds as well as deposits?

[Grimy]

I'm not actually sure about bonds. I would like to think so. It will depend on what the powers-that-be finally agree on.
But it certainly won't cover Tier1 capital perpetual preference shares like this.

[Lego_Man]

Thanks for your post. Will the deposit guarantee scheme cover bonds as well as deposits?

It won't. Top of the stack will be secured/covered bondholders, depositors, then senior unsecured bonds (most of the ones on issue). By the time you get to Tier 2 there is less chance of repayment, and AT1 basically no chance in a failure scenario. However a government bailout/recap might make whole the AT1 holders and not the regular equityholders.

[Grimy]

Rate set at 7.6%.
I received my full application amount.

[GTM 3442]

It won't. Top of the stack will be secured/covered bondholders, depositors, then senior unsecured bonds (most of the ones on issue). By the time you get to Tier 2 there is less chance of repayment, and AT1 basically no chance in a failure scenario. However a government bailout/recap might make whole the AT1 holders and not the regular equityholders.


As I understand it, back in the day the government guarantee as applied to South Canterbury Finance covered the plain vanilla Bonds but not the Perpetual Preference Shares.

This may set a precedent in the minds of those designing the current arrangement.

[Lego_Man]

As I understand it, back in the day the government guarantee as applied to South Canterbury Finance covered the plain vanilla Bonds but not the Perpetual Preference Shares.

This may set a precedent in the minds of those designing the current arrangement.

Quite a different scenario. Under the NZ Regs, the AT1 can only be touched if the bank has been effectively shuttered by the regulators. Quite unlikely in the case of our Big 4 banks which are much better regulated now, and i assume would benefit from unlimited liquidity support from the RBNZ in case of stress, as they have done in the not so distant past.

Bank sub debt and preferred stock are great investments in NZ. A lot of the positive economics of banks have been shifted from equity holders to bond holders with the current capital requirements and implied lower leverage.