BNZ seeks to raise up to NZ$200 mln through 7-year bond offer to institutional and habitual investors

Bank of New Zealand (BNZ) is seeking up to NZ$200 million through a seven-year bond issue that will be priced on Friday at 215 basis points over the swap rate.

With the seven-year swap rate at 3.49% this morning that would give investors' an interest rate of 5.64%. The new issue, which opened on Monday, comes with BNZ set to call a NZ$350 million subordinated bond on Friday.

These bonds were originally issued in the high interest rate environment of 2007 and have been paying an interest rate of 8.42% per annum. 

Although BNZ could have elected to reset the interest rate at 75 basis points over the five-year swap rate and kept the subordinated bonds on issue for another five-years, this type of subordinated (tier two capital) debt is not expected to be recognised as capital under the Reserve Bank's new Basel III bank capital adequacy standards.

On top of this the current low interest rate environment would've seen investors' receiving a much lower interest rate, just 3.91% based on today's 3.16% swap rate.  See more on this here.

Meanwhile, the new issue is targeting institutional and habitual investors but will be retailable, meaning the bonds will be available to retail investors in the secondary market.

The BNZ is seeking to raise a minimum of NZ$50 million and has capped the offer at NZ$200 million. It'll be priced mid-morning on Friday. BNZ raised NZ$200 million in a seven-year bond issue in December, which was priced at 200 basis points over swap and is paying investors 6.1%.

When announcing last month that it it would call the subordinated bonds on June 15, BNZ also said if bondholders invest their bond money in a BNZ term deposit for at least 30 days, they'll get an increase of 20 basis points to the advertised rate. See all advertised bank term deposit rates here.