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ANZ issues first Australian covered bond
ANZ has announced the completion of the first Australian covered bond issue, raising US$1.25 billion from US debt markets.
The five-year fixed rate transaction was priced at a spread of 115 basis points over mid-swaps, at around 60 basis points inside the level for new senior unsecured US dollar debt issues, the bank stated.
"We expect that covered bonds will become an important part of ANZ's term funding strategy, and the Australian Government's introduction of the legislation was both timely and positive for the industry," said ANZ group treasurer Rick Moscati.
He said the introduction of covered bonds provided an opportunity for ANZ to continue to diversify its investor base, further reduce the requirement for senior unsecured debt in offshore markets, and lengthen its funding profile in a cost-effective manner.
ANZ's announcement follows Government amendments (made in October) to the Banking Act 1959. Under the new legislation - entitled Australian Parliament of Banking Amendment (Covered Bonds) Act 2011 - authorised deposit-taking institutions (ADIs) are now permitted to issue covered bonds as part of the Government's move to provide cheaper, more stable and longer-term funding for the Australian financial system, Deputy Prime Minister and Treasurer Wayne Swan said.
Swan said covered bonds offer institutional investors more security over their investment than normal banks' bonds, and they are therefore more willing to lend to financial institutions for less.
"Covered bonds will assist our banks in meeting the new Basel III liquidity reforms which require a transition to longer-term sustainable funding," he said.
"A deep and liquid covered bond market will also help to channel our national superannuation savings through the financial system into more productive investment sectors of our economy."
On 8 November, the Australian Prudential Regulation Authority released for consultation a discussion paper and a draft prudential standard that aims to ensure ADIs adopt prudent practices when issuing the bonds and managing risks associated with the exposure to a covered bond special purpose vehicle.
Treasury estimates that the new reforms will allow Australian ADIs to issue around $130 billion of covered bonds in coming years, Swan said.
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