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RaboBank Capital Securities (RBOHA)

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Credit Rating: BBB- Investment Grade
First Call Date: Oct 8 2017

Gross Yield if Called: 8.65%p.a.

Rabobank is a brand well known to most New Zealanders. The Dutch banking cooperative has developed a presence in New Zealand, particularly in the rural sector.

The relative safety of Rabobank is why we are happy to hold some of their resettable securities in our fixed interest portfolios. Although they are complex securities, the relative safety of Rabobank, and the potential return over the next 16 months, make the Rabobank Perpetual Capital Securities well worth consideration for investors.Although the company has expanded internationally, the Netherlands still accounts for 74% of group private sector lending. Of this, approximately half is mortgages. The structure of the Dutch housing market is such that we are quite confident in Rabobank’s future (for example the riskiest borrowers must be involved in the NHG, which is a national mortgage guarantee scheme). This is reflected in Rabobank’s very high credit rating.

These securities were issued in October of 2007, and have their first call date in October of next year. We consider the chance of these securities being called as very high. If they are called, then investors who purchase the securities at 94 cents per unit (their current market price) would then receive $1 per unit back. This represents a 6.4% capital gain over a reasonably short period.

Along with the potential capital gain, investors can expect two more quarterly distributions at a gross running yield of 3.71%p.a. (in July and October this year) , and 4 quarterly distributions at an indicative running yield of 3.29% in 2017.

When all is said and done, should these securities be called as we expect in October next year, investors buying today would be buying at a gross yield of 8.65%p.a. (or 11.94% over the next 16 months).

This is a very attractive return given the current low interest rate environment.

Given the complexity of these securities, investors should talk to their advisor to discuss if the securities are suitable for their portfolio.

Ratings Agency Credit Rating
Moody’s Aa2
S&P A+
Fitch AA-
DBRS AA

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