By Danny John
NATIONAL Australia Bank has capitalised on the freeze in international credit markets and a resulting fall in prices by offering to buy back $US250 million ($309 million) of long-term borrowings at a substantial discount to face value.
In a move that will help improve the top level of funding - its Tier One capital - NAB hopes to pick up the debt in minimum sums of $US10,000 in return for paying $US6250 for each block. That is equivalent to a 37.5 per cent discount.
It mirrors decisions taken by other financial services groups such as Macquarie to pick up previously higher-priced debt at discounts caused by the global financial crisis.
Some markets have had little trading as buyers have retreated, leaving sellers unable to get out of investments that have fallen substantially in value.
The debt that is the subject of NAB's quick-fire offer was issued a year before the sharemarket crash of 1987 and has no maturity date.
The notes are listed on the London Stock Exchange but have hardly traded over the past 18 months because the market for such securities has dried up.
NAB has been paying interest on the notes for 23 years and saw the opportunity offered by the illiquid market to buy out investors at a large price advantage. It is understood the notes last traded at the same discount now being offered by the bank.
The tender offer, being handled in London by investment bank UBS, opened yesterday and closes on July 22. A NAB spokesman said the bank did not have a target for how much of the debt it expected to acquire.
There are signs the high cost of new debt is beginning to ease. The Bank of Queensland yesterday surpassed a planned raising of $500 million by $250 million, at 65 basis points over the current rate, half a percentage point lower than its last such issue in January.