House of the year, Australia: ANZ

Asia Risk Awards 2022

For ANZ, the past 12 months can be divided into two parts. The second half of 2021 was marked by high volumes, strong growth and aggressive client behaviour. The early part of this year saw much more risk-off sentiment, as inflationary pressures mounted and the likelihood of interest rate hikes grew.

“This has really played to the strengths of our franchise and the holistic way we see the market,” says Jimmy Choi, global head of capital markets at ANZ. “If you look across all the sectors that we participate in, we are leading by market share and in terms of execution. This has been important for being able to offer our clients the kind of products and solutions that serve them best, according to shifting market conditions.”

Solid structuring capabilities and efficient trade execution has helped ANZ land some large deals this year – and also contributed to the innovative solutions that the bank has been able to craft.

This isn’t purely about the in-house expertise that the bank has at its disposal. It is also down to the sophisticated cross-asset derivatives structuring platform, SKY, that ANZ first launched in 2014 and which it continues to develop.

Modifications of the system that are currently taking place include the integration of SKY into ANZ’s e-channels, so that pricing is consistent for all customers across all venues, and transition from on-premise grid computing infrastructure to a hybrid cloud model can occur, which will allow greater scale and capacity in times of market stress.

One deal that shows the strength of ANZ’s broad structuring solution is a full funding and risk management solution offered to an offshore asset manager.

This asset manager had just secured a US$3.5 billion senior secured facility to support their acquisition of part of an infrastructure asset in Australia.

This deal was particularly welcomed by ANZ’s structuring team, as it ticked a number of green credential boxes for the bank; the purpose of the infrastructure project was to develop one of the country’s lowest-carbon gas sources.

ANZ played multiple roles in this deal, including as lead arranger, pre-financial close FX hedging bank and interest rate hedge provider.

ANZ was one of six banks chosen to execute the FX hedging and won a greater than pro-rata share of 25% of the total exposure. The bank’s pre-financial close hedging was subject to a number of conditions being met and supported by a letter of credit issued by a counterparty rated at least AA-. A particularly unusual aspect of this deal was that it was done prior to financial close, so there was no guarantee that the transaction would go ahead when it was executed.

ANZ executed a total of A$400 million (US$269 million), with the trades going out five years in tenor. In recognition of the value that ANZ brought to the deal, the bank was additionally awarded US$225 million of the long-term interest rate swaps to support the transaction.

Green credentials

Like the deal highlighted above, a lot of the landmark transactions that ANZ has closed over the past year fit into the green agenda that the bank is trying to push.

“This sustainability commitment is critical for our strategy, and we have been very forthright in expressing our views where deals don’t satisfy our long-term goals or those of the country. We have walked away from deals where we’ve had to,” says Matthew Morris, head of Australia franchise markets at ANZ.

In June last year, ANZ was joint lead manager for the first sustainability-linked bond (SLB) in the Australia dollar-denominated medium-term note market.

The transaction was done for Wesfarmers, a diverse conglomerate headquartered in Perth, operating principally in retail, chemical, fertiliser, industrial and safety products.

The SLB included coupon step-ups based on sustainability targets being met, as well as a premium-payment mechanism in case they are not.

Wesfarmers sought to raise A$1 billion in this way. There were two tranches of issuance: seven-year unsecured and 10-year unsecured.

There was very strong demand for this product, which peaked in excess of A$2.65 billion. This allowed Wesfarmers to raise A$650 million of the seven-year tranche, with an interest rate of 1.94%, and A$350 million of the 10-year one, with an interest rate of 2.55%.

This represents the lowest coupon in each tenor this year by a corporate issuer. The final allocation was distributed to more than 80 accounts, driven by almost even demand from domestic and offshore investors. Settlement of the transaction is expected to occur on June 23, 2023.

“Being first to market meant a lot of work: putting a governance framework in place, explaining the significance of the issuance to investors, walking local investors through how an SLB works and what the KPIs are. This all took time,” says Morris. “This is a big deal that sets a marker in the sand for future transactions.”

Other green transactions that ANZ has help arrange this year include a NZ$200 million (US$119.8 million) sustainability-linked loan for Auckland Council in New Zealand; a NZ$100 million 6.5-year SLB for Spark Finance in New Zealand; a S$115 million (US$81.8 million) sustainability-linked loan for Hyundai Group and Hong Kong’s largest USD green bond worth US$4 billion, issued by Airport Authority Hong Kong.

“Everyone plays up their green credentials, but we do have a very large ESG team here and, more importantly, we are doing a great deal of pioneering work, whether this is helping to set up new government frameworks or bringing first-of-a-kind new structures to market,” says Choi.