by Jenny Ruth
Craigs Investment Partners has been appointed arranger and joint lead manager with the ANZ and ASB banks and Forsyth Barr and Westpac has been appointed co-manager.
Contact didn't provide any further details or indicate the bonds' maturity but a broker said the issue is likely to be similar to the $150 million Australian-listed Insurance Australia Group is planning to launch in New Zealand and the recent Woolworths subordinated notes issue which was so popular the amount was raised from A$500 million (NZ$650 million) to A$700 million.
The term of both these issues was 25 years, callable after five years. The broker says the attraction of this type of structure for the companies is the bonds are treated as equity by the ratings agencies for the first five years while the relatively high interest rate is designed to be attractive to retail investors.
Because the ratings agencies cease treating such issues as equity after five years and because there is usually a step-up in yield after the five-year mark, making them rather expensive debt, the companies are highly likely to redeem them at that five-year point.
The IAG issue hasn't been priced yet but the Woolworths issue was priced at 3.25% over the five-year swap rate.
The yield on the Contact bonds should be higher than either the IAG issue or the Woolworths issue because of its lower "BBB" credit rating from Standard & Poor's compared with IAG's "A+" rating and Woolworths' senior debt rating of "A-" - its subordinated notes weren't rated while IAG's have an "A-" rating.
The broker says the Contact issue is likely to be popular. "The retail market's crying out for it - Woolworths' was absolutely hoovered."
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