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Suncorp-Metway Plans First Foreign Currency Bond Sale Since 2009

Suncorp-Metway Ltd., Australia’s fifth-biggest lender, plans to sell its first foreign-currency bonds in more than 2 1/2 years to meet demand from offshore investors for the nation’s bank debt.

Suncorp may sell notes in Swiss francs, yen, U.S. dollars or British pounds after receiving interest from international asset managers following its debut domestic covered bond in May, Simon Lewis, the lender’s head of funding, said by phone from Brisbane last week. The banking unit of Suncorp Group Ltd. plans to complete a sale in at least one of the currencies by the end of the year, he said.

Suncorp-Metway was the first regional Australian bank to sell covered bonds, raising A$1.6 billion ($1.6 billion), after the Australian government passed laws in October to allow the sale of the securities. The nation’s four biggest banks have traditionally been bigger users of debt markets, owing a combined A$384 billion to bondholders compared with Suncorp-Metway’s A$8.9 billion, data compiled by Bloomberg show.

“The covered bond deal got quite a lot of attention offshore,” Lewis said. “Any company that can do a deal that’s more than 1 billion euros ($1.3 billion) in size raises a few eyebrows and reminds investors that there’s another bank down here that maybe they can look at.”

Financial Spreads

Suncorp-Metway plans to raise A$3 billion to A$4 billion of term funding a year, Lewis said. It last sold foreign currency debt in November 2009, issuing $300 million of floating-rate notes, data compiled by Bloomberg show.

The extra yield investors demand to hold Australian financial bonds sold worldwide compared with government debt fell 34 basis points this quarter to 176 on Aug. 31, compared with a global average of 234, Bank of America Merrill Lynch index data show.

The spread on Suncorp-Metway’s A$1.1 billion of 4.75 percent covered bonds due December 2016 was last at 118 basis points more than swap rates, from a 140 basis-point premium when the notes were sold on May 30, according to Commonwealth Bank of Australia prices.

Swiss franc bonds currently offer attractive funding costs, Lewis said, estimating that raising the equivalent of A$250 million from three-year notes would cost between 140 basis points and 150 basis points more than the bank bill swap rate once swapped back into Australian dollars.

Suncorp paid a 150 basis-point margin to sell three-year debt at home in April, data compiled by Bloomberg show.

Mortgage Bonds

The bank priced a A$1 billion sale of residential mortgage-backed securities from its Apollo Trust last week, the data show. RMBS aren’t guaranteed by the issuer, while covered bonds are backed by an issuer’s guarantee and an underlying pool of mortgages.

Suncorp-Metway doesn’t plan to offer further RMBS in the next 12 months, focusing instead on senior unsecured debt sales, said Lewis.

“It means that we can keep our covered bond program as a fallback position and use it strategically,” he said. “If there’s a change in the market and liquidity dries up, we’ve still got a covered bond program that we can turn to.”

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