ANZ seeks $300m with fixed-interest offer

By MARK FRYER

Fixed-interest investors are being offered another option, with the issue of up to $300 million in bonds by the ANZ Banking Group.

The offer opened yesterday and the bank hopes to raise $125 million from institutional investors and another $125 million from the public, who can buy the bonds from members of the Stock Exchange. If there is enough interest, the bank can issue a further $50 million worth.

The bonds run for at least five years, at which time the bank can either pay back your money or extend the bonds for another five years, to 2012.

Over that five or 10 years, investors will get interest payments twice a year.

The minimum investment is $10,000 and the offer is open until July 18, unless all the bonds are sold sooner.

The ANZ says the bonds have an A+ credit rating from ratings agency Standard & Poor's.

Now for the $64,000 question - what's the interest rate? The bank doesn't know yet, since the rate won't be set until the day after the issue closes, on July 19. On that day, the rate will be worked out by taking something called the five-year swap rate and adding 0.3 per cent.

While the actual rate will depend on what happens to interest rates between now and July 19, if it had been set yesterday the bonds would be paying about 7.2 per cent.

Once the interest rate has been set it will be fixed for five years. If the bank renews the bonds, the rate will be re-set for another five years, by taking the five-year swap rate at the time and adding 0.8 per cent.

How does it compare with the obvious option of simply putting your money into a term deposit?

The rate on the bonds is slightly higher, as of yesterday at least. For the sort of amount you'll need to buy the bonds ($10,000-plus) the ANZ is offering a five-year term deposit at 6.75 per cent.

The big difference is in the way the bonds are traded. The bank plans to list them on the Stock Exchange, meaning investors who want to get out will do so by selling their bonds thorugh a member of the exchange.

Investors who sell early may find they get more or less for their bonds than they originally cost.

Any capital gain made by selling early will be taxable, as are the bonds' six-monthly interest payments.

Those interest payments will have withholding tax deducted at the maximum rate of 39 per cent, or at your own rate if you supply your IRD number.