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Rates round-up: November 19

Rabobank credit rating cut; Infratil bonds reset lower; Kiwibank sets interest rate for bonds

Monday, 19 November 2012

by Niko Kloeten

Standard & Poor’s has lowered Rabobank New Zealand’s credit rating by one notch, bringing it in line with the “big four” Australian-owned banks.

Rabo has had its long-term credit rating lowered from AA to AA- with a stable outlook, in line with its Dutch parent company as concerns grow about the economy in the Netherlands.

"We observe that the bank's performance has not been immune to some deterioration domestically since mid-2011, particularly in certain portfolios such as commercial real estate and certain small and midsize enterprise (SME) sectors," S&P said of Rabobank Nederland.

"However, we consider that Rabobank Nederland's overall position continues to compare favourably to peers. This view underpins our assessment of the bank's risk position, which remains "strong". Asset quality is underpinned by the large domestic residential mortgage book, which represented 46% of private sector lending at June 30, 2012, and has a long-term average bad debt cost of about 5 basis points."

Infratil bonds reset lower

Investors in Infratil’s perpetual infrastructure bonds have seen the interest rate on their bonds reset lower for the fifth year in a row as the Reserve Bank holds the Official Cash Rate down.

The bonds, which operate in a similar manner to shares because they don’t have a maturity date, are reset annually at 1.5% above the one-year bank swap rate.

And in the latest reset last week they dropped from 4.22% to 3.97%, well down from 10.27% in 2007 and 9.00% when they were launched in 2006.

Infratil has about $240 million of these bonds on issue (at face value), which are trading at between 54c and 60c in the dollar on the NZDX as a result of their plummeting interest rates, which are well below the 8.0% being returned to investors in Infratil’s most recent six-year bond issue.

However, Infratil says if current forecasts are accurate the rate will go back up to 6.17% by 2014.

Kiwibank sets interest rate for bonds

State-owned Kiwibank has set the interest rate on its $150 million unsecured, unsubordinated bond offer at 5.80%.

The offer is at a margin of 2.77% above the five-year swap rate and is at the bottom of a bookbuild range of up to 6% set by the offer managers.

The interest rate will reset in November 2017.

Kiwibank has ruled out a public pool for the offer, which is expected to have a credit rating of BB+, due to strong interest from institutional investors.

Craigs Investment Partners and Kiwibank are joint lead managers for the offer. ANZ and Forsyth Barr are co-managers.

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