Kiwibank says the RBNZ has now given permission for two disputed bond issues to be be classified as regulatory capital again

Kiwibank’s capital dispute with the Reserve Bank has taken another twist.

The state owned bank says its regulator has now decided that two bond issues at the centre of the dispute can actually qualify as regulatory capital after all.

This comes after Kiwibank’s shareholders NZ Post, the NZ Super Fund and ACC tipped in $247 million of capital in April to make up for the Reserve Bank’s decision that the two bonds in question could no longer be regarded as regulatory capital.

Here’s Kiwibank’s statement.

Kiwibank convertible capital instruments held by Kiwi Capital Funding Limited (KCFL) requalify as regulatory capital 

Kiwibank Limited is now able to treat the following two convertible capital instruments issued by Kiwibank and held by Kiwi Capital Funding Limited (KCFL) as regulatory capital under Document BS2A of the RBNZ’s Capital Adequacy Framework (Standardised Approach): 

 Kiwibank’s Tier 2 convertible subordinated bond issued on 6 June 2014 ($100m); and 

 Kiwibank’s Additional Tier 1 perpetual bond issued on 27 May 2015 ($150m) 

The Tier 2 bond and the AT1 bond (together, the Kiwibank Bonds) are the related bonds for, respectively, Capital Notes (ticker code KCF010) and Perpetual Capital Notes (ticker code KCFHA) issued by Kiwi Capital Funding Limited. 

In March 2017 the Reserve Bank of New Zealand (RBNZ) formed a preliminary view that the Kiwibank Bonds did not comply with certain requirements of BS2A. Following this, changes were made to address the concerns raised by the RBNZ which resulted in the accounting deconsolidation of KCFL from Kiwibank with effect from 30 March 2017. However, on 29 May 2017 the RBNZ revoked their notices of non-objection for the Kiwibank Bonds and so Kiwibank was then not able to treat the Kiwibank Bonds as regulatory capital. 

Having now given due consideration to the changes that were made and accepting that Kiwibank should not consolidate KCFL, the RBNZ has today issued a new notice of nonobjection in relation to the Kiwibank Bonds. This means that Kiwibank can again treat the Kiwibank Bonds as regulatory capital.