Fitch Rates First Non-Chinese CNY Sub Debt Issued by ANZ
The direct, unsecured and subordinated obligations will be issued under ANZ's USD60bn Euro Medium Term Note Programme. Final maturity is 30 January 2025, although an earlier redemption on 30 January 2020 is possible, subject to prior written approval by the Australian Prudential Regulation Authority (APRA). The notes include a non-viability clause and will qualify as regulatory Tier 2 capital for ANZ.
KEY RATING DRIVERS & RATING SENSITIVITIES
The instrument is classified as subordinated debt and is rated one notch below ANZ's Viability Rating (VR) of 'aa-' to reflect its below-average recovery prospects compared to senior unsecured instruments. The notes would convert to equity in part or in full should APRA deem that without the conversion or without a public sector capital injection, ANZ were non-viable. The notes would be written off in part or in full should ANZ be unable to convert the notes to equity within five business days of the trigger event date. No additional notching from the VR for non-performance is applied as the VR already captures the point of non-viability. Under Fitch's methodology, the instrument does not qualify for any equity credit.
ANZ's subordinated debt ratings are broadly sensitive to the same considerations that might affect the bank's VR (see Rating Action Commentary dated 17 June 2014).
ANZ is the first non-Chinese bank to issue Basel-III compliant Tier-2 debt into the Dim Sum bond market. ANZ has an active international funding strategy and this issue is part of its overall diversification plan.
The size of the Dim Sum market continues to expand rapidly, and as it does, it will become more attractive to issuers and investors alike as market depth and liquidity improves. Fitch expects other non-Chinese banks to follow ANZ's example and issue into the Dim Sum market, reflecting international investors' and issuers' growing acceptance of the Yuan as a global currency.
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