Back on 7 March Kiwibank announced it had priced $175 million 10 year bonds. It was to be Kiwibank first transaction in the Kangaroo market where issuers incorporated offshore issue bonds denominated in Australian dollars, since 2009.
The timing could have been a bit better. Only a week earlier, all three credit ratings agencies had downgraded Kiwibank’s debt to A/A1/AA-. Kiwibank’s major shareholder is New Zealand Post, which removed a guarantee on Kiwibank’s payment obligations at the end of February. That led to a credit downgrade which in turn would have added to the cost of any subsequent bond issue.
Everyone was aware of the downgrade and there was nothing untoward about it in connection with the intended bond issue. Kiwibank had gone through the usual series of investor presentations which are designed to gauge investor interest at the same time as informing investors of the securities’ investment merits. Then came the pricing stage, where a yield which is acceptable to both the seller and the buyers was decided. In this case, the yield to redemption was set at 4.575% or 162bps over Swap.
It is rare for a planned bond issue to get past the investor briefings and the pricing stage only for the issuer to pull the issue. However, this is exactly what Kiwibank has done. One week after the bond pricing announcement, Kiwibank announced it would not proceed with settlement. Apparently the RBNZ has notified Kiwibank its tier 2 convertible bonds and additional tier 1 perpetual bonds do not comply with certain requirements in the RBNZ’s capital adequacy framework and Kiwibank felt this enough reason to pull the issue. ”While the issues continue to be discussed, Kiwibank has decided not to proceed with the settlement of a proposed AUD175 million bond issue that was scheduled to settle on 15 March 2017.” Kiwibank said it was pretty much business as usual and the “RBNZ preliminary decision does not in any way impact the growth opportunities of the bank…” It makes one wonder why the bank is working “urgently” to resolve the issues.