Rates Round Up

Kiwibank raises $309mill; Treasury budgets $816m payout to investors; Blue Star saysno RWT tax.

Monday, 19 October 2009

Kiwibank has successfully raised A$250 million ($309 million) through a bond issue in Australia.

This is the bank’s first entry into the international wholesale bond market since the bank was launched in 2002.

The bank sought to raise a minimum of A$200 million. The A$250 million raised is priced at a margin of 42 basis points over bank bill swap rates.

The bonds are guaranteed by the bank’s parent, New Zealand Post Limited, and are provisionally guaranteed by the New Zealand Government under the Crown Wholesale Funding Guarantee Scheme. The bonds are expected to be rated as Aaa by Moody’s and AA+ by Standard & Poor’s.

Treasury budgets $816m payout to investors
Treasury has budgeted to pay out $816 million to investors under the Retail Deposit Guarantee scheme within the next 12 months.

It has come up with that figure after indentifying firms that are “more likely than not” to fail or trigger some sort of payment under the scheme.

As at the end of June, 73 institutions had joined the scheme, with deposits of $124 billion guaranteed.

So far it has only paid out around $34 million on two companies; Mascot Finance, which failed in March 2009, and Strata Finance, which failed in April.

Treasury’s $816 million estimate was based on the original guarantee scheme which was due to end this month. The scheme has now been modified and extended to the end of 2011.

Treasury said it doesn’t expect to make any payments to entities that hold more than $5 billion in deposits (ie, the major banks). Rather payments will be to investors in smaller institutions.

Blue Star saysno RWT tax
Blue Star Group, which controversially suspended payment of interest on its capital bonds, has said it will not be deducting resident withholding tax from the suspended interest during the suspension period.

“RWT is only required to be deducted when interest is paid and Blue Star has received advice that the requirement to withhold RWT is not triggered during the interest suspension period,” the company says in a statement to the NZX.

Blue Star also confirmed that when interest payments resume, interest will be paid to the persons who are registered holders of the capital bonds on the record date for the relevant interest payment date, regardless of who might have been the holder of the bonds during any of the interest suspension period prior to that record date. Since the suspension in September interest has accrued at the higher step-up rate of 13.1%.

The step-up interest rate will apply to the outstanding principal and unpaid quarterly interest for all interest payment dates after 15 September 2009. The suspended interest will be calculated on a compounding basis on each quarterly interest payment date during the suspension period. The suspended interest will not be capitalised to become principal. It has provided further commentary on tax issues in this statement.

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