ANZ's compliant subordinated bond
This week Money asks FIIG where to invest and its pick is ANZ's Basel III compliant subordinated bond.
Since the start of the year, there has been a distinct, 'risk off' focus by investors. Bank and resource shares have declined dramatically and there is speculation some will cut dividends.
One of the companies under the spotlight is major bank, ANZ. Its share price declined by 13% in the past three months to $22.75 due to concerns over its diversification into Asia.
Last November, ANZ issued a Basel III compliant subordinated bond. The bond has quarterly interest payments, that cannot be cut and investors can expect to get their money back at final maturity in ten years, if not before, on the call date in May 2021.
In contrast to the shares, these bonds have remained around the $100 price where they were first issued.
The bonds pay a floating interest rate which is linked to interest rates. If the market expects interest rates to rise, the interest earned on these bonds will also rise.
The estimated yield to call in May 2021 is a high 5.00%pa.
ANZ is one of the four major banks in Australia and the largest banking group in New Zealand and the Asia-Pacific.
The company has roots dating back to 1835 and is one of the top ten companies by market capitalisation on the Australian Stock Exchange - $66bn as at February 15, 2016.
ANZ, together with the other major Australian banks, is supported by strong capital ratios and a highly regarded prudential regulator in APRA that is requiring further capital to be raised in the coming years.
- The ANZ notes are subordinated floating rate bonds with a current projected yield to call of 5.0%pa
- The bonds are investment grade and rated* by S&P as BBB+ and Moody's as A3
- Expected to be repaid at first call in May 2021, but should the call date be missed, can be called on each interest payment date with final maturity in May 2026
- Minimum investment per bond is A$10,000 - The bonds can convert to shares if the regulator APRA deems the bank non viable
- FIIG is a dealer and we take a small brokerage fee when we transact, this is already included in the yield to maturity returns shown above - A custody service fee is also charged
- The suboridnated bonds are only available to wholesale investors, minimum upfront spend for new investors is $50,000
Note: The return quoted is accurate as at February 15, 2016 but subject to change *The credit ratings are specific to the bond identified as AU3FN0029575