Bank of China NZ undeterred after offering 'premium' return in first NZD bond sale

Bank of China New Zealand raised $150 million in its first NZ dollar bond sale and says having to offer a higher return than similarly rated local corporates hasn't put it off the local debt market.

The lender, which has an A credit rating at Standard & Poor's, was registered with the Reserve Bank in November 2014 and the sale of five-year bonds is the first under its recently established medium-term note programme, meaning it's a newbie in the New Zealand market.

The October 2022 bonds carry a coupon of 4.09 percent, which was a margin of 135 basis points over the 5-year swap rate. That's higher than the rate on Auckland International Airport's April 2023 bonds sold this month of 3.62 percent, which included a margin over swap of 82 basis points, even though the airport's credit rating is one notch lower than Bank of China's at A-.

Auckland Airport "has a lower credit rating, i.e. considered higher risk, than BOC yet was able to issue at a significant discount due to name recognition and familiarity," said BOC NZ treasurer Craig Vickery. He also noted that state-owned Kiwibank is able to issue bonds at lower interest rates than BOC, even though it has the same credit rating.

In announcing the sale, Vickery said New Zealand investors "should get comfortable with Chinese credit as local Chinese banks become more involved in supporting NZ businesses." He told BusinessDesk that institutional investors "are getting comfortable" with BOC, the third Chinese bank to set up in New Zealand and begin using the NZ capital markets. But retail investors "are still going through a name recognition/familiarity phase with BOC which will take much longer."

"Some local fund managers still have a more challenging process of defending to investors a Chinese bank investment over an NZ-branded company investment," he said.

Still, demand at the sale "was exceptional and well above what was expected," Vickery said. "We were very cautious coming into the launch (being our inaugural issue and setting a market benchmark for the future) to ensure the transaction was going to be a success."

BOC was the third Chinese bank to be registered in New Zealand after Industrial and Commercial Bank of China (New Zealand) gained registration in November 2013 and China Construction Bank (New Zealand) in 2014.

Industrial and Commercial Bank's local unit reported New Zealand assets stood at about $904 million in 2016, while China Construction Bank's were at about $888 million and BOC at $515 million.

There are currently 24 banks registered in New Zealand.

(BusinessDesk)