IBRD Raises NZ$800 Million With Record Kauri Bond Transaction

The International Bank for Reconstruction & Development raised NZ$800 million ($694 million) selling Kauri bonds in the biggest sale of the securities on record.

The top-rated issuer priced the February 2019 notes to yield 57 basis points more than New Zealand government debt, according to an e-mailed statement from TD Securities Inc., which managed the deal along with Westpac Banking Corp. The debentures add to an existing bond line which previously had NZ$550 million of notes outstanding.

IBRD’s transaction is the biggest in New Zealand’s syndicated bond market this year and the largest-ever by an offshore issuer, according to Bloomberg data going back to 1999. Kommunalbanken AS also sold NZ$100 million of Kauri bonds today, sale manager Australia & New Zealand Banking Group Ltd. said. The deals follow a slow period of sales in the South Pacific nation’s primary bond market. Volumes total NZ$6.95 billion this year, down 5 percent from the same period in 2013.

“The New Zealand bond market hasn’t had a lot of issuance of late and there hasn’t been much available for people to buy in the secondary market either, so investors were eager,” Peter Dalton, the Sydney-based head of Westpac’s debt syndicate team said in a phone interview today. “There’s been a lot of liquidity in the market and fixed-income investors have had a fair bit of cash to put to work.”

Relative Value

The deals follow yesterday’s move by the Reserve Bank of New Zealand to increase interest rates for the third time this year, even as central banks from Europe to Japan and the U.S. continue to keep their benchmarks near zero. RBNZ Governor Graeme Wheeler raised the official cash rate by a quarter point to 3.25 percent. This has helped to boost overall yields for bonds denominated in New Zealand dollars.

“The outright yield represented good relative value for investors,” said Ben Stewart, a Singapore-based director in TD’s debt syndicate. “The Kauri product will certainly be getting more attention going forward.”

IBRD, part of the World Bank Group, carries top credit grades from all three major ratings companies. A Kauri bond is a note denominated in New Zealand dollars issued by a borrower foreign to the country.

The New Zealand dollar bought 86.66 U.S. cents as of 9 p.m. in Wellington, up 5.5 percent this year.

Before it's here, it's on the Bloomberg Terminal.