ANZ Bank New Zealand Will Not Convert NZ$500 million Capital Notes at Optional Exchange Date

On 2 April 2020, ANZ Bank New Zealand Limited (ANB) advised that the Reserve Bank of New Zealand had informed locally incorporated banks that they should not redeem capital notes at this time and accordingly ANB would not be permitted to redeem its NZ$500 million of mandatory convertible perpetual subordinated securities (Capital Notes) under ticker code ANBHB on 25 May 2020 (the Optional Exchange Date).

On 17 April 2020, ANB further advised (announcement here) that it will not be exercising its option to convert the Capital Notes into ordinary shares of Australia and New Zealand Banking Group Limited (ANZBGL) on the Optional Exchange Date.

The Capital Notes are scheduled to convert into ordinary shares of ANZBGL on the Mandatory Conversion date (25 May 2022, subject to conditions).

The interest rate on the Capital Notes will now reset on 25 May 2020 - and each quarterly interest payment date after that - to the 3 month bank bill rate plus 3.50%. Interest is scheduled to be paid quarterly in arrears, is subject to ANB’s discretion and other conditions as set out in the investment statement, and is non-cumulative.

In our view, the path now being followed by ANB has effectively been forced on it by the RBNZ and barring an approved legal deviation to the Notes' terms and conditions, will result in an Exchange in 2022 subject to conversion conditions being met. Generally, these conditions aim to protect holders' interests and prevent conversion if $101 of equity per $100 invested is not realistically achievable.