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BNZ sells $425m of covered bonds in first sale

Contributor:
Fuseworks Media
Fuseworks Media

Wellington, June 14 NZPA - The Bank of New Zealand has got the first sale of covered bonds away in New Zealand.

It has sold $425 million of five and seven year bonds to New Zealand institutions. Settlement is on June 16.

"We are delighted to have issued the first covered bond by an Australasian bank, and we extend our thanks to the domestic investor base for their strong support of the transaction," BNZ Treasurer Neil Bradley said.

The bank sold $175m five-year bonds maturing on June 30, 2015 at a yield of 6 percent, which is 98 basis points above the comparable market swap rate.

It sold $250m of seven-year bonds maturing on June 30, 2017 at 6.425 percent, or 112 basis points above swap.

The bonds are rated AAA by both Moody's and Fitch. The bonds rank equally with other BNZ senior bonds but also have a guarantee from a trust that owns a pool of dedicated mortgages.

Covered bonds are controversial because they give investors a prior claim on bank mortgages. They are banned in Australia. BNZ is wholly owned by Australia's National Australia Bank Ltd.

"Issuing five and seven year bonds in these significant volumes in the New Zealand market is another milestone in BNZ's funding programme, and further supports BNZ's balance sheet strength, which is an ongoing focus across the bank," said Mahes Hettige, head of balance sheet management at BNZ.

The bank has signalled a programme of up to $3 billion of the covered bonds.

Moody's Investors Service said last week that covered bonds represented a diversification in the area of wholesale bank funding and gave banks a new investor base to tap into.

Concerns about covered bonds included that they were a "cherry picking" of the best bank assets, they could lead to secured funding concentrations and were currently not eligible for Reserve Bank of New Zealand (RBNZ) so called repo-facilities.

RBNZ governor Alan Bollard said in a speech today that Australasian banks had relied heavily on short-term foreign funding and that proved a vulnerability in the global financial crisis.

"For that reason we have put in place a liquidity policy requiring banks to hold longer-term foreign funding plus retail deposits to meet an increasing core funding ratio.

"That has already contributed to longer duration funding," he said.

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