ANZ’s market return from all angles
ANZ Banking Group’s capital-markets return, on 19 August, marked the first major-bank domestic tier-two deal since late 2019 and the sector’s first Australian dollar green, social and sustainability (GSS) bond since 2017. It is ANZ’s third transaction under its SDG framework, which aligns use of proceeds with the UN Sustainable Development Goals, having previously only issued in the euro market.
ANZ’s group treasurer, Adrian Went, global head of capital markets, Paul White, head of sustainable finance, Katharine Tapley, and head of debt investor relations, Scott Gifford, discuss the deal with KangaNews.
This deal came on the same day as ANZ’s third-quarter results. What were the main messages ANZ wanted to communicate to investors ahead of the deal?
The other key piece of our results is the dividend for shareholders. [ANZ chief executive] Shayne Elliott spoke about the need to keep equilibrium between a strong balance sheet and delivering some return to shareholders. The dividend is smaller than it was pre-crisis, but we considered this a very important message that speaks to the confidence we have in our balance sheet and our ongoing performance.
Capital is likely to be the only substantial call from major banks on capital markets in the near term. What plans do you have for this type of issuance and has the strategy changed since last year given the lack of need for senior-unsecured funding?
The other big factor is the deposit flows we have seen. We think this will continue as the amount of money in the system increases with various actions from the RBA and the federal government.
We have reiterated that our approach to TLAC [total loss-absorbing capacity] and tier-two issuance is unchanged from what it was 12 months’ ago. We still need to get to 5 per cent of risk-weighted assets by January 2024 and the Australian major banks will need to do a significant amount of issuance to get there. We need to diversify across markets, tenors and currencies and we will be looking at private placements and public transactions.
What was the rationale for coming to the Australian dollar market for this deal?
This is the first labelled GSS bond issued by a major bank in Australian dollars since 2017. It is also the first time ANZ has issued under its SDG framework in Australian dollars. What were the factors behind this decision?
Creating a framework that links to the SDGs allows us to demonstrate to investors how our lending activities are deriving impact. They can then demonstrate this to their constituents.
We had not been in the local GSS bond market since our inaugural green bond in 2015 so felt it was time to return. The transaction was well received, with crossover interest into this deal from our green-bond transaction.
The support for what we are doing was very evident in the investor call where most of the questions were focused on the format of the deal rather than ANZ’s trading update, which had only been delivered an hour before.
There were many detailed questions around our framework, what we are doing and how we retain a robust approach through impact reporting and independent reviews. The call definitely demonstrated to us a maturing of ESG [environmental, social and governance] approach among domestic investors since our first GSS deal in 2015.
Exactly what sort of information did investors request on the SDG framework and use of proceeds?
There were also questions on our approach to reporting. We explained that we are not only focused on how we use proceeds but also how we measure impact. One of the benefits of issuing an SDG bond is that the SDGs provide a framework for measuring impact.
Investors are traditionally focused on issues such as reducing emissions intensity and other environmental outcomes, because these are measurable. However, we also explained how we are measuring impact in socially-oriented asset classes such as healthcare, for example beds provided in hospitals and availability of aged care to vulnerable cohorts.
This feeds into the narrative of a sustainable recovery from COVID-19. Do you get a sense the pandemic has provided an inflection point for investors looking at GSS issuance, and is the domestic market catching up to Europe?
COVID-19 is certainly an inflection point, though. Coupled with the extensive bushfires and flooding we saw in Australia last summer, I think we will only see greater focus on environmental and social issues.
One of the motivations we had for refreshing our SDG bond framework was to add two more SDGs which have become increasingly relevant as a result of these events. These are SDG8 – decent work and economic growth, and SDG15 – life on land.
We are very focused on supporting our customer base through recovery from the pandemic and the economic fallout as well as investing in resilience and adaptation activities in anticipation of further extreme weather events caused by climate change.
What is the outlook for ANZ’s SDG issuance? Can the bank maintain supply even though overall issuance is subdued?
We are committed to being a regular and leading issuer in SDG format. We have now executed SDG transactions in 2018, 2019 and 2020 and there is no reason this frequency could not continue.
Until this week there had been very little tier-two issuance in Australian dollars since the start of the COVID-19 crisis. How did this affect the execution process?
What is the background for supply and demand drivers for major banks at the moment, and how do these affect the wider market?
We are seeing a general shift into higher-yielding assets. This means other financial institutions and corporates are benefiting from the lack of major-bank supply. For example, Goodman’s A$400 million deal on 19 August saw more than A$2 billion of demand, and Coles saw more than A$3 billion of demand for its deal on the following day.
Investors are looking to invest in different asset classes, longer tenor and lower credit ratings to get yield in this environment.
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