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ANZ offers up $1 billion of capital notes

ANZ (ASX: ANZ) has announced that following strong demand for its Capital Notes, the bank has decided to up its allocation from $750 million to $1 billion.

Set at 3.4%, ANZ notes may represent good value, particularly when interest rates are expected to fall even further. The relatively stable nature of the notes and secure yield give investors a way to diversify some of their wealth away from other asset classes like shares.

The offer has got the market excited, sending the company’s share price up around 2% at close yesterday. However, the company’s yield and growth prospects should have the market more excited about the shares than the notes offer.

Generally companies will use capital raising to fund corporate costs and provide capital for core investment strategies. At the moment, ANZ’s overseas expansion into Asia, the highest level of domestic ROE and 5.1% dividend yield (fully franked) is what has allowed the company’s share price to continue to creep higher in recent years.

Since 2010, the company’s share price has risen over 30% plus dividends but it’s expected to continue into the future. With branches opening up right around Asia, including busy streets of Bangkok, the ANZ is strategically placing itself in high growth areas right around the globe.

For its Asia Pacific division, its most recent half-yearly report showed the company recorded 27% more loans and advances than in the previous corresponding period and grew customer deposits by 31%. In the same time frame, cash profit grew by 3%.

Foolish takeaway

Notes offer a healthy way to acquire reasonable fixed income yields whilst interest rates are low. However, long term investors should also be looking at the company’s shares, because compared to its peers like NAB (ASX: NAB) and Westpac (ASX: WBC), ANZ offers better the same amount of safety but a potentially much larger upside.

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Motley Fool contributor Owen Raszkiewicz owns shares in Myer.

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