SMSFundamentals | May 18 2012
SMSFundamentals is an ongoing feature series dedicated to providing SMSFs (smurfs) with valuable news, investment ideas and services, in line with SMSF requirements and obligations.
For an introduction and story archive please visit FNArena's SMSFundamentals website.
By Greg Peel
Heritage Bank is Australia's largest customer-owned bank, tracing its roots back to the Toowoomba Building Society which opened in 1875. As a mutual, Heritage is not exchange-listed but the bank will list its new issue of senior unsecured bonds on the ASX.
Fixed interest specialist FIIG Securities is acting as a broker for the issue and suggests the bonds provide retail and wholesale investors with the opportunity to lock in a high fixed rate of return. As as mutual, Heritage Bank has focused on providing low risk, “vanilla” banking products to its members, avoiding the riskier areas of the financial sector. The result is a low-risk loan book with low arrears that “far outperforms” its peer group, FIIG notes.
Some 95% of Heritage's loan book represents residential mortgages. All of those mortgages are “full-doc” and the average loan-to-value ratio is a modest 58%, minimising the loss to the bank in the event of a default. Heritage is an approved deposit-taking institution (ADI) and as such is regulated by the Australian Prudential Regulatory Authority (APRA).
The bank is borrowing $125m in the form of a senior unsecured bond issue at a fixed interest rate of 7.25% per annum. Maturity is after five years at which point the bonds will be repaid in full while quarterly interest payments will be made in arrears.
The return on offer is “far superior” to other senior issues on offer from ADIs, declares FIIG, and as such the broker feels the issue offers “compelling value” for investors.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.
