IAG lifts 25 year bond issue to $325m, sets minimum coupon at 7.5%

Australian-listed Insurance Australia Group, which operates under the NZI and State Insurance brands, has increased its New Zealand subordinated bond issue for a second time to $325 million.

Tuesday, 15 November 2011

by Jenny Ruth

IAG says the increased size of the issue follows strong indicated demand.

The 25 year bonds will have a minimum 7.5% annual coupon with the actual interest rate being set on or about December 13 at the higher of 7.5% or the margin of 3.78% above five-year swap rate.

Last month, when IAG first announced it was considering such a bond issue it had planned to issue $150 million.

Such issues are currently very popular. From the issuers' point of view, that's because ratings agencies treat them as equity for the first five years, after which they are likely to be redeemed. Standard & Poor's has rated the bonds "A-" - two notches below IAG's own "A+" rating.

From investors' point of view, the attraction is undoubtedly the relatively high interest rate.

However, the bonds rank behind IAG's other creditors although ahead of its shareholders.

Last week, Contact Energy increased a similar 30 year subordinated bond offer by $100 million to $250 million and last month Australia's Woolworths raise its 25 year subordinated notes issue from A$500 million (NZ$654.3 million) to A$700 million.

The joint lead managers of IAG's issue are ANZ Bank, Bank of New Zealand, Craigs Investment Partners, Forsyth Barr and UBS New Zealand. Macquarie and Westpac's New Zealand branch are co-managers.

All the bonds have been allotted to those intermediaries for distribution to their clients and there will be no public pool.

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