A Kiwi hybrid

Kiwi Capital Funding Limited yesterday advised the New Zealand stock exchange of its intention to issue up to NZ$150 million of perpetual, non-cumulative, unsecured, subordinated securities, otherwise referred to as perpetual capital notes.

KFCL is a sister company of Kiwibank and the proceeds from the note issue will be used to invest in Basel III compliant, additional tier one capital notes issued by Kiwibank.
 
As a result, the perpetual capital notes will effectively mirror the additional tier one capital notes issued by Kiwibank and come with the risk of coupon loss, equity conversion or complete write-off. These risks are reflected in the BB-rating that has been assigned to the notes by Standard & Poor's.

S&P reached this level by starting with the bbb stand-alone rating of KCFL (and Kiwibank), then deducting one rating notch for subordination, two notches for the risk of partial or untimely payment, and one more notch for the non-viability equity conversion trigger.

The coupon to be paid on the notes will be set at a margin of 365 basis points to 395 bps over the five-year swap rate, to be determined through a bookbuild on May 1. The coupon on the notes will be reset every five years, if the notes are not redeemed.

Another sister company, Kiwi Capital Securities Limited, has NZ$150 million of perpetual capital notes due to be called on May 4. These notes pay a coupon of 8.15 per cent per annum.

The KCFL perpetual capital notes issue will open on May 4 and close on May 21.