New Issue: ANZ Capital Notes 7

On 15 February 2022, Australia and New Zealand Banking Group (ASX: ANZ) launched an offer for ANZ Capital Notes 7 (expected ASX Code: ANZPJ), to raise $1.0 billion, with the ability to raise more or less. The offer is accompanied by a Reinvestment Offer for Eligible Holders of ANZ Capital Notes 2 (ASX: ANZPE). The purpose of the transaction is to raise regulatory capital (Additional Tier 1) for ANZ with the proceeds intended to refinance ANZPE and for general business purposes.

ANZPJ are structured as convertible, perpetual, unsecured, subordinated notes. Distributions are expected to be discretionary, non-cumulative, floating rate, franked at the same rate as ANZ ordinary shares (currently 100%), and paid on a quarterly basis in arrears until converted or redeemed. The margin is guided at 2.70-2.90% p.a. above 90-day BBSW.

This security has no fixed maturity date but is scheduled for mandatory conversion into ANZ ordinary shares on 20 September 2031, or later, when conversion conditions have been satisfied. ANZ can choose to redeem or resell the Notes for cash at face value ($100), or covert the Notes in ANZ ordinary shares on 20 March 2029, 20 June 2029, or 20 September 2029, or following a Tax or Regulatory Event, subject to conditions including APRA approval.

We see fair value around the 241bps margin mark, so at an issue margin at the bottom of the indicative range 270-290 bps, ANZPJ offers a robust concession premium. We recommend investors Subscribe due to the relative value premium and our fundamental credit comfort with the Issuer, ANZ.