BNZ has become the first New Zealand bank to sell covered bonds in Europe denominated in euros, and has raised a whopping €1 billion ($NZ1.7 billion).Covered bonds are controversial because they have recourse to a pool of assets that secure
BNZ has become the first New Zealand bank to sell covered bonds in Europe denominated in euros, and has raised a whopping €1 billion ($NZ1.7 billion).
Covered bonds are controversial because they have recourse to a pool of assets that secures or "covers" the bonds. They are not allowed in Australia where the law requires banks to place depositors above all other creditors in their claims on assets.
In June BNZ, which is a unit of National Australia Bank, raised $425 million by selling covered bonds denominated in New Zealand dollars.
This is the first New Zealand covered bond issue in Europe.
BNZ said strong demand from European investors enabled the issue size to be scaled up to $1 billion euro, which was an excellent result considering European sovereign debt concerns re-emerging in recent weeks.
"This inaugural euro covered bond issue is a very cost effective form of term funding for BNZ," said BNZ treasurer Tim Main. "It also increases the bank's access to a significantly broader range of global investors".
The seven year bonds were priced at 0.61 percent per annum over the euro mid swap rate.
The covered bonds have a direct claim on a designated pool of mortgage loans.
Covered bonds will become an important element of BNZ's term funding programme, and will enable the bank to achieve greater investor and maturity term diversification, the bank said.
The bonds can also be used repo facilities with the Reserve Bank of New Zealand.
