Westpac wants to know why NZ class shares are failing

By RICHARD BRADDELL

Westpac's New Zealand class shares provide an exceptional yield and exposure to the bank's growth, but they have traded at a heavy discount - and top executives from Sydney want to know why.

Deputy chief financial officer Phil Chronican and head of capital management Andrew Smith have been in New Zealand to talk to analysts.

Though they have been presenting a bullish view of Westpac's prospects - it just reported an 18 per cent lift in profit to $A1.7 billion ($2.18 billion) with a strong second half expected to flow into the current year - they are also asking why the New Zealand class shares have been underpriced so badly.

If the $4.75 second instalment due on December 20 was paid today, the New Zealand shares would be trading at a $2.70 discount to the Australian head shares.

"We are trying to understand why that's happened, because fundamentally it's the same value proposition," Mr Chronican said.

Actually, it is a better value proposition because although they are partly paid, the New Zealand shares are paying dividends equivalent to those on the fully paid headshares.

And in contrast to the headshares, those dividends are also eligible for New Zealand imputation credits.

Also, because they are still only partly paid, those who like a bit of extra risk appreciate the extra gearing to capital gains in share price rises.

In the initial public offer in September last year, Westpac hoped to raise up to $800 million.

The offer closed with $650 million subscribed.

Analysts have cited the relative lack of liquidity in the local market for the subdued performance, along with disappointment that New Zealand was not included in Westpac's $A100 million share buyback which has taken more than $A90 million.

But although New Zealand class shareholders are excluded from the buyback, they will benefit from the improved dividend prospects because of higher earnings per share that should flow to the headshares.

Mr Chronican said the discount could be due to a lack of clarity arising from the partly paid structure, which might improve once they become fully paid.