High yield tipped from bank float

By Richard Braddell

WELLINGTON - Mums and dads are among the key investor groups targeted in Westpac Banking Corporation's $800 million offer of New Zealand class shares.

"This is an exciting 'first' for us. Westpac is the only bank using a New Zealand company for purposes of listing on the stock exchange and the New Zealand class shares will provide the only local exposure to the Australasian banking sector," WestpacTrust's managing director, Harry Price, said yesterday.

The shares, while issued in a New Zealand registered company, WestpacTrust Investments, are expected to track Westpac head shares and will provide the same value in dividends, even while they are only partly paid.

Despite its name, WestpacTrust Investments will have no direct ownership of the New Zealand bank. Instead, the $800 million raised will be passed on to Westpac itself for global capital management purposes, with investor security lying in rights to convert WestpacTrust Investments' shares into Westpac shares in certain circumstances such as a takeover or liquidation.

At the official announcement yesterday, Westpac's managing director, David Morgan, said the issue was a step towards redressing an imbalance between the 17 per cent contribution to profit of the group's New Zealand business, WestpacTrust, and New Zealand ownership of Westpac itself which amounts to only 1.5 per cent.

The offer could potentially lift New Zealand ownership of Westpac to around 5 per cent, depending on how much of the issue goes overseas in a global pool.

Among other things, it is hoped the issue will strengthen relationships with WestpacTrust customers and staff, who will have preferential purchase rights, and to diversify the shareholding base.

The so-called Mums and Dads would strengthen the shareholding base because they generally tended to be longer-term investors.

The minimum $1800 investment for 250 partly paid shares equates to $7.20 each.

The outstanding balance, due in December 2000, will be determined in an institutional book building likely to be completed on October 9 and the total price is in some measure likely to reflect the Westpac head share price which has been trading around $A9.70.

Full dividends will be paid during the partly-paid term and on the assumption that Westpac's current dividend is maintained during the partly paid period, the shares would yield 17.25 per cent before tax, or 14.2 per cent on an annualised basis.

The WestpacTrust Investments structure hurdles a taxation barrier that denies New Zealand investors access to dividend imputation credits issued by Australian companies.