BNZ’s domestic return hits issuer and investor tenor preference

Bank of New Zealand (BNZ)’s March transaction is the second local big-four bank benchmark deal for 2022. Market participants are optimistic volatility will temper the corporate issuance pipeline.

Bank of New Zealand (BNZ)’s March transaction is the second local big-four bank benchmark deal for 2022. Market participants are optimistic volatility will temper the corporate issuance pipeline.

BNZ’s NZ$750 million (US$515.4 million) deal is the country’s largest bank transaction since Westpac New Zealand’s NZ$900 million five-year print in 2019. BNZ’s bond was also a purely institutional trade, where most local credit deals in 2022 have leaned heavily on retail investors. Wholesale accounts are exhibiting shorter tenor preferences in the newly volatile market environment. “We identified healthy demand in short-dated paper – meaning two years or less, and definitely not as long as three years,” says Mike Faville, head of debt capital markets at BNZ in Auckland. “Investors have been selling equities and duration, so two years certainly fits a buy-side preference for putting cash to work.”

The transaction launched in fixed- and floating-rate note formats at 53-58 basis points area over swap benchmarks. Split NZ$150 million and NZ$600 million, it landed on a margin of 56 basis points.

Faville adds the closest secondary comp was an ANZ March 2024 bond, which was marked at 43.4 basis points over swap at close on 14 March. “All indications have been that new-issue premia need to be at least 10 basis points and often more. While we fielded a range of investor views on pricing, the consensus was definitely in the mid-50s basis points over swap.”

Mahes Hettige, head of balance sheet management at BNZ in Wellington, says the bank was already in a strong liquidity position heading into a deal that allowed it to convert CP into shorter-dated MTNs.
He continues: “Having issued US$1.5 billion in the 144A market in January we had the luxury of being able to sit back from new issuance. With this transaction we wanted to offer something to the domestic market, but we also believe offshore options would be available to us as indicated by some private placement flow. Certainly the New Zealand banks have developed a good footprint offshore.”