ANZ has announced the pricing on its USD$1 billion issue of ANZ Capital Securities which was first flagged at the end of May. Indicative pricing of the fixed-rate securities was at 725bp but by the time the issue was officially launched it was reported to have tightened to 700bps. The final pricing settled at 675bps and is a result of the massive demand generating around USD$18 billion worth of orders. The hybrids will be issued through ANZ’s London branch.
The offshore issue will potentially change the face of hybrid securities market in Australia. The ATO has given a ruling that will allow banks to issue hybrids offshore without attaching franking credits to distributions. This has increased the ability of local banks to issue large amounts of hybrids into institutional markets overseas in a short time frame may end up limiting the volume of hybrids available to local retail investors. This, in turn, may drive the trading margins of local hybrids lower.
A number of local hybrid specialists including Bell Potter, Evans and Partners, Elstree Funds Management agree with Shaw and Partners saying the implication of this latest issue is “there is clearly an alternative source of demand offshore, if required, for Australian major bank AT1 issuance.” Domestic hybrid issues remain a lower cash cost for the banks because of the value of franking credits to domestic investors but “yield hungry” offshore investors will be attracted to high unfranked yield of these sorts of securities.
YieldReport will maintain a close watch on hybrid margins but already it would seem that local demand is picking up.