KEY POINTS:
Unfazed by the market turbulence that sank the Yellow Pages bond issue last week, Dutch banking giant Rabobank is to push ahead with its $400 million issue on the local debt market.
Rabobank looks set to offer investors an initial rate of 9 to 9.25 per cent on its capital securities - some 2 per cent less than Yellow Pages had planned to offer.
But the key difference is the level of risk involved for investors.
The Rabobank securities come with an investment grade AA rating from Standard & Poor's and an Aa2 rating by Moody's. Rabobank itself has a AAA rating from Standard & Poor's. By contrast, the Yellow Pages bonds would have been unrated and well below investment grade level.
The Rabobank securities will trade on the NZX debt market.
Rabobank chief financial officer Bert Bruggink - in town yesterday to promote the offer - said he welcomed the shake-out of global credit markets.
It was helping to bring some sensible pricing of risk back to the debt markets, he said.
"The credit spreads have been so compressed in the past few years that the differential between AAA rated companies and lower rated companies was minimal and risk didn't have a price any more," he said.
It was inevitable that the balance would swing back as it had in the past six weeks, he said. "This is a bumpy way to get to a situation which is more healthy."
Rabobank is one of Europe's biggest banks. It has assets of more than €556 billion ($1.1 trillion) and liabilities of €527 billion. It dominates the retail banking market in the Netherlands which provides about 55 per cent of its income.
It is also one of Europe's biggest lenders in the agribusiness sector and has begun expanding into other nations with strong agribusiness sectors - hence the push into Australia and New Zealand in the past few years.
It is clearly not short of cash. Bruggink agrees. But he said Rabobank has had solid equity growth in several new markets in the past few years. It was now seeking to balance that equity position with sensible debt levels in those markets.
Since entering the New Zealand market by buying Wrightson's finance business in 1998, Rabobank has accumulated $5 billion worth of local assets but carries no dollar debt.
Rabobank has already made a similar sized issue of bonds in the Australian market.
The bonds - or capital securities - will be unsecured and subordinated to Rabobank's senior debt. They are "perpetual securities" which will not have a scheduled repayment date but Rabobank will have an option to redeem them from 2017. For the first 10 years the interest rate will be set at a margin to the bench mark one year swap rate. After 2017 it will be set at a margin to the 90 day bank bill rate.
First NZ Capital and ASB are the joint lead managers of the issue.
BIG ISSUE
* Netherlands based Rabobank will issue $400 million of bonds - with provision for oversubscription if necessary.
* The bonds will be traded on the NZX and will have an AA investment grade rating from Standard & Poor's.
* Interest will be reviewed annually but they are likely to begin trading with a rate of 9 to 9.25 per cent.
* The issue opens next Monday and closes on October 5.
