ANZ Capital Notes 3 Offer

23 January 2015

Offer Summary

	Offer	●Offer by Australia and New Zealand Banking Group Limited (“ANZ”) acting through its New Zealand branch of ANZ Capital Notes 3 (“Notes”) – Mandatorily Convertible into ANZ Ordinary Shares
	Term	●Perpetual unless Redeemed or Converted ●Mandatory Conversion on 24 March 2025 or following a Trigger Event or a Change of Control Event ●ANZ Optional Exchange on 24 March 2023 , or following a Tax Event or Regulatory Event
	Offer size	●$750 million with the ability to raise more or less
	Face Value	●$100 per Note
	Purpose	●The Notes are offered as part of ANZ’s ongoing capital management strategy and for general corporate purposes ●APRA has confirmed that the Notes will constitute Additional Tier 1 Capital for the purposes of ANZ’s regulatory capital requirements
	Offer structure	●The Offer is being made to: – eligible ANZ Securityholders; – members of the general public who are Australian residents; – retail clients of syndicate brokers; and – institutional investors ●ANZ Securityholders are holders of ANZ Ordinary Shares, ANZ Capital Securities (being CPS2, CPS3, CN1 and CN2) or ANZ Subordinated Notes, shown on the register at 7:00pm AEDT on 31 December 2014 with a registered address in Australia
	Listing	●ANZ will apply to have the Notes listed on ASX and the Notes are expected to trade under ASX code ‘ANZPF’
	Ranking1	●In a Winding-Up of ANZ, the Notes rank for payment: – ahead of ANZ Ordinary Shares; – equally with ANZ Capital Securities and any other equal ranking instruments; and – behind depositors, senior ranking securities, ANZ Subordinated Notes and other creditors of ANZ

The ranking of the Notes in a winding-up will be adversely affected if a Trigger Event occurs. Following Conversion, Holders will have a claim as an Ordinary

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Shareholder. If a Note is Written-Off, all rights in respect of a Note will be terminated and the Holder will not have their capital repaid. 2

Distributions

Non-cumulative based on a floating rate (180 Day BBSW)
Expected to be fully or substantially franked
If a Distribution is not fully franked, the cash amount of the Distribution will be increased to compensate holders for the unfranked portion of the Distribution, subject to certain Payment Conditions

Distributions

Distributions are payable on 24 March and 24 September, subject to complying with applicable law, ANZ’s absolute discretion and no Payment Condition existing. A Payment Condition exists where:
payment results in ANZ or the Group breaching its APRA capital adequacy requirements;
payment results in ANZ becoming, or being likely to become, insolvent; or
– APRA objects to the payment of the Distribution

Distribution Rate

Dividends and Capital Restrictions

Distribution Rate = (180 day BBSW + Margin) x (1 – Australian corporate tax rate)
● Margin expected to be in the range of 3.60% to 3.80% per annum
If a Distribution is not paid in full within 3 Business Days after a Distribution Payment Date, ANZ cannot, without approval of a Special Resolution of Holders, until and including the next Distribution Payment Date (i.e. for the next 6 months): – resolve to pay or pay a dividend on ANZ Ordinary Shares; or
– buy back or reduce capital on ANZ Ordinary Shares
Limited exceptions apply, including not applying to dividends for an approved NOHC

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Mandatory Conversion on a Mandatory Conversion Date

Mandatory Conversion

On 24 March 2025 (“Mandatory Conversion Date”), subject to satisfaction of the Mandatory Conversion Conditions, the Notes will mandatorily Convert into a variable number of ANZ Ordinary Shares at a 1% discount to the 20 day VWAP[1] , unless Exchanged prior or Converted following a Trigger Event
The number of ANZ Ordinary Shares issued following Conversion on the Mandatory Conversion Date is subject to the Maximum Conversion Number which is set to reflect a VWAP of 50% of the Issue Date VWAP (i.e. the average ANZ Ordinary Share price over 20 business days prior to the issue date of the Notes)

Mandatory Conversion Conditions

Intention of Mandatory Conversion Conditions

The VWAP on the 25th business day before (but not including) a possible Mandatory Conversion Date is greater than 56.00% of the Issue Date VWAP
The VWAP during the 20 business days before (but not including) a possible Mandatory Conversion Date is greater than 50.51% of the Issue Date VWAP
ANZ Ordinary Shares remain listed and admitted to trading and trading has not been suspended for 5 consecutive Business Days before, and the suspension is not continuing on, the Mandatory Conversion Date and no Inability Event exists (ie. ANZ is not prevented by applicable law or court order (such as insolvency, winding-up or external administration of ANZ) from converting the Notes or another reason)

• The Mandatory Conversion Conditions are intended to provide protection on Conversion (other than following a Trigger Event) to Holders from receiving less than approximately $101 worth of ANZ Ordinary Shares per Note on the Mandatory Conversion Date and that those ANZ Ordinary Shares are capable of being sold on the ASX

Deferral of Conversion

If any of the Mandatory Conversion Conditions are not satisfied, the Mandatory Conversion Date will be deferred until the next Distribution Payment Date on which all of those conditions are satisfied
Notes may remain on issue indefinitely if those conditions are not satisfied
The VWAP during the 20 business days on which trading in Ordinary Shares took place immediately preceding (but not including) the Mandatory Conversion Date that is used to calculate the number of ANZ Ordinary Shares that Holders receive may differ from the ANZ Ordinary Share price on or after the Mandatory Conversion Date. This means that the value of ANZ Ordinary Shares received may be more or less than anticipated when they are issued or thereafter. 4

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Mandatory Conversion on a Trigger Event

5
Trigger Event
• Includes a Common Equity Capital Trigger Event or Non-Viability Trigger Event
Common Equity
Capital Trigger
Event
• ANZ determines, or APRA has notified ANZ in writing that it believes, that ANZ’s Common
Equity Capital Ratio is equal to or less than 5.125%
Non-Viability
Trigger Event
• APRA notifies ANZ in writing that:
– Conversion or Write-Off of Relevant Securities is necessary because without it ANZ
would become non-viable; or
– without a public sector injection of capital ANZ would become non-viable
Conversion
following a Trigger
Event
• ANZ may be required to immediately Convert all or some of the Notes into a variable
number of ANZ Ordinary Shares at a 1% discount to the 5 day VWAP prior to the
Conversion date, subject to the Maximum Conversion Number
• If a Non-Viability Trigger Event occurs because APRA determines that ANZ would become
non-viable without a public sector injection of capital, all of the Notes will Convert
• There are no conditions to Conversion following a Trigger Event
• The application of the Maximum Conversion Number means that, depending on the price
of ANZ Ordinary Shares at the time of Conversion, Holders may suffer a loss as a
consequence
Maximum
Conversion Number
• The number of ANZ Ordinary Shares per Note that Holders are issued on Conversion may
not be greater than the Maximum Conversion Number. The Maximum Conversion Number
is the Face Value of the Notes ($100) divided by 20% of the Issue Date VWAP (as
adjusted in limited circumstances)
Write-Off
• If the Notes are not Converted within 5 Business Days of a Trigger Event for any reason
(including an Inability Event) they will be Written Off (which means all rights in relation to
those Notes will be terminated and Holders will not have their capital repaid and will have
no rights to any Distributions)

Optional Exchange & Mandatory Conversion on a Change of Control Event

Optional Exchange Date

• ANZ may choose to Exchange all or some Notes on issue on 24 March 2023

Regulatory or Tax Event

ANZ may choose to Exchange all or some Notes if a Regulatory Event or a Tax Event occurs

Change of Control Event

All Notes will mandatorily Convert into ANZ Ordinary Shares if a Change of Control Event occurs, subject to satisfaction of certain conditions
Subject to APRA’s prior written approval and provided certain conditions are satisfied, ANZ may Exchange Notes via any or a combination of:
Conversion into ANZ Ordinary Shares worth approximately $101 per Note;
Redemption for $100 per Note; or
Reselling the Notes to a nominated purchaser for $100 per Note
Key conditions to Redemption are:

Exchange

  - the Notes being replaced concurrently or beforehand with Tier 1 Capital of the same or better quality as the Notes and the replacement of the Notes is done under conditions that are sustainable for ANZ’s income capacity; or

  - APRA is satisfied that ANZ’s capital position is well above its minimum capital requirements after ANZ elects to Redeem the Notes

Conversion into ANZ Ordinary Shares is subject to the Maximum Conversion Number which is calculated by reference to 20% of the ANZ Ordinary Share price at issue of the Notes
Holders should not expect that APRA will approve any Exchange
Holder Exchange Holders do not have the right to request Exchange
Based on the VWAP during a period, usually 20 business days, before the date that the Conversion occurs. If Conversion occurs as a result of a Change of Control Event, the period for calculating the VWAP may be less than 20 business days before the relevant Conversion Date. The VWAP used to calculate the number of ANZ Ordinary Shares that Holders may receive may differ from the ANZ Ordinary Share price on or after the relevant Conversion Date. This means that the value of the ANZ Ordinary Shares received may be more or less than anticipated when they are issued or thereafter

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Ranking of Notes on Winding-Up

Senior creditors	Examples	Examples of existing ANZ obligations and securities1
Senior creditors	Liabilities preferred by law and secured debt	Liabilities in Australia in relation to protected accounts under the Banking Act (generally, savings accounts and term deposits) and other liabilities preferred by law including employee entitlements and secured creditors
	Unsubordinated unsecured debt	Bonds and notes, trade and general creditors. This includes covered bonds which are an unsecured claim on ANZ, though they are secured over assets that form part of the Group
	Subordinated unsecured debt	ANZ Subordinated Notes and other subordinated unsecured debt obligations ranking senior to preference shares


		ANZ Capital Notes 31, ANZ Capital Securities

This is the ranking prior to Conversion (if the securities are on issue at the time). If a Note is Written-Off, all rights (including to Distributions) in respect of that Note will be terminated and the Holder will not have their money repaid. If a Note is Converted, the Ordinary Shares that a Holder receives on Conversion will rank equally with other Ordinary Shares in a winding-up of ANZ.7

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Trading prices of selected ANZ Hybrids compared to an ANZ Ordinar Share Price adjusted y

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Source: Reuters

Comparison of ANZ Capital Notes 3 to other ANZ securities

ANZ Capital Notes 3
ANZ Capital Notes 1 & 2
ASX Code
ANZPF
CN1: ANZPD
CN2: ANZPE
Term
Perpetual, subject to Mandatory Conversion after
~10 years
Perpetual, subject to mandatory conversion after
~10 years
Margin
Expected to be between 3.60% and 3.80%
CN1: 3.40%
CN2: 3.25%
Distribution Payment
Dates
Half-yearly
Half-yearly
Franking
Franked, subject to gross-up for unfranked
portion
Franked, subject to gross-up for unfranked portion
Payment Conditions
Yes, subject to ANZ’s discretion and Payment
Conditions
Yes, subject to ANZ’s discretion and payment
conditions
Distribution Restrictions
for non-payment
Yes, applies to Ordinary Shares until the next
Distribution Payment Date
Yes, applies to Ordinary Shares until the next
distribution payment date
Mandatory Conversion
Yes on 24 March 2025 and a Change of Control
CN1: Yes, on 1 September 2023 and a change of
control
CN2: Yes on 24 March 2024 and a change of
control
ANZ Early Redemption
Option1
Yes, on 24 March 2023 and for Tax Event or
Regulatory Event
CN1: Yes, on 1 September 2021 and for tax or
regulatory events
CN2: Yes, on 24 March 2022 and for tax or
regulatory events
Conversion on Trigger
Event
Yes, on a Common Equity Capital Trigger Event
for the ANZ Level 1 and 2 Groups and Non-
Viability Trigger Event
Yes, on a common equity capital trigger event for
the ANZ Level 1 and 2 Groups and non-viability
trigger event
Capital Classification
Additional Tier 1
Additional Tier 1

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Only with APRA’s prior written approval

Summary of certain events that may occur during the term of ANZ Capital Notes 3[1]

	When?	Is APRA approval needed?2	Do conditions apply?	What value will a Holder receive for each Note?	In what form will the value be provided to Holders?
Mandatory Conversion	On 24 March 2025 or the first Distribution Payment Date after that date on which the Mandatory Conversion Conditions are satisfied	No	Yes	~$1013	Variable number of Ordinary Shares
Optional Conversion	24 March 2023	Yes	Yes	~$1013	Variable number of Ordinary Shares
Optional Redemption	24 March 2023	Yes	Yes	$100	Cash
Optional Resale	24 March 2023	Yes	No	$100	Cash
Other Conversions	If a Tax Event or Regulatory Event occurs	Yes	Yes	~$1013	Variable number of Ordinary Shares
	If a Change of Control Event occurs	No	Yes	~$1013	Variable number of Ordinary Shares
	If a Trigger Event occurs	No	No	Depending on market price of the Ordinary Shares, Holders are likely to receive significantly less than ~$1013	Variable number of Ordinary Shares, capped at the Maximum Conversion Number. However, if the Notes are not Converted within 5 Business Days, the Notes will be Written Off4
Other Redemption	If a Tax Event or Regulatory Event occurs	Yes	Yes	$100	Cash
Other Resale	If a Tax Event or Regulatory Event occurs	Yes	No	$100	Cash

The table above summarises certain events that may occur during the term of the Notes, and what Holders may receive if those events occur. The events depend on a number of factors including ANZ’s Ordinary Share price, the occurrence of contingencies and in some cases election by ANZ. As a result, the events may not occur. 2. Holders should not expect that APRA’s approval will be given if requested. 3. On the basis of the Conversion calculations, the value of the Ordinary Shares received on Conversion may be worth more or less than approximately $101. The number of Ordinary Shares that Holders receive will not be greater than the Maximum Conversion Number. 4. If a Note is Written Off, all rights (including to Distributions) in respect of the Note will be terminated, and the Holder will not have their capital repaid

ANZ’s Common Equity Capital Ratio[1]

APRA Common Equity Capital (CET1) Ratio on a Level 2 basis[2]

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APRA CET1 Ratio on a Level 1 and Level 2 basis

	Level 1	Level 2
Sep 13	8.5%	8.5%
Sep 14	9.1%	8.8%
Surplus over 5.125% CET1 Trigger at Sep 14	~$12.5bn	~$13.2bn

ANZ’s Common Equity Capital Ratio at Level 1 and Level 2 is determined under APRA’s Basel 3 capital adequacy standards
The Notes mandatorily Convert into ANZ Ordinary Shares (subject to a Maximum Conversion Number) following:
- a Common Equity Capital Trigger Event if ANZ’s Common Equity Capital Ratio (at Level 1 or Level 2) equals or is less than 5.125%; or
- a Non-Viability Trigger Event if APRA notifies ANZ that, without conversion or a public sector injection of capital, ANZ would be non-viable
From 1 January 2016, APRA requires ADIs to maintain a 2.5% Capital Conservation Buffer and a further 1% D- SIB capital requirement (for ANZ) in excess of APRA’s minimum requirement of 4.5%[2] . Post implementation in January 2016, ANZ will target a CET1 ratio in the high 8% range during normal conditions
- Failure to maintain the full capital buffers limits ANZ’s ability to pay discretionary bonuses and dividends and interest payment on Ordinary Shares and Tier 1 Instruments
The CET1 ratio can be expected to increase reflecting the build-up of current year earnings and decrease reflecting the subsequent payment of dividend (generally in July and December of each year)
ANZ gives no assurance as to what its capital ratios will be at any time as they may be significantly impacted by unexpected events affecting its business, operations and financial condition.
APRA may set higher targets for individual ADIs.

Basel III Additional Tier 1

Management actions and CCB key to preventing conversion

Basel 3 CET1 Capital & Capital Conservation

Actions Available to Strengthen Capital

Indicative AT1 buffers (FY14)

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|||||
|---|---|---|---|
|Management|Maximum|
|Buffer|Distribution|Annual pre-|
|8.0%|Possible actions to be|
|invoked if CET1 ratio declines|provision|
|60%|
|below management target|cash profit|
|include:|$10.8bn|
|40%|•|Reducing dividend payout|
|CCB|
|Management|•|DRP discount and|
|Quartiles|
|Actions|underwrite|
|20%|
|•|New share issuance|
|•|CET1|
|Expense management|
|0%|•|Restricting RWA growth|(above 5.125%)|
|4.5%|•|Asset sales|$13.2bn|
|Regulatory restrictions on|
|ordinary share dividends, AUSTRALIA DIVISION|
|CCB|Additional|
|Minimum|discretionary bonuses and|
|Restrictions|Tier 1|
|Distribution of|AT1 coupon payments as|
|CET1|
|earnings is|CCB buffer is breached.|
|increasingly|
|restricted as|
|CET1 level|
|falls into CCB|

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Common Equity Tier 1 generation and dividend payments

APRA Basel III CET1 Ratio

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9.0%
8.8%
8.5%
8.3%
8.0%
7.8%
7.5%
Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14
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Note: shaded quarters represent declaration of dividends. Basel III basis.
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Under Basel III (from January 2013), dividends are only deducted from regulatory capital in the quarter in which they are declared. This results in volatility in quarterly reported capital ratios
To assess the underlying regulatory capital position, dividend payments should be adjusted to accrue evenly over the year, aligned with profit generation

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Key dates for the Offer[1]

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Lodgement of the Prospectus with ASIC 23 January 2015 Bookbuild to determine the Margin 4 February 2015 Announcement of the Margin and lodgement 5 February 2015 of the replacement prospectus with ASIC

Opening Date 5 February 2015 Closing Date for ANZ Securityholder Offer and General Offer 5:00pm AEDT on 26 February 2015

Closing Date for Broker Firm Offer and Institutional Offer 10:00am AEDT on 4 March 2015

Issue Date 5 March 2015 ANZ Capital Notes 3 commence trading on ASX 6 March 2015 (deferred settlement basis)

Confirmation Statements despatched by 10 March 2015 ANZ Capital Notes 3 commence trading on ASX 11 March 2015 (normal settlement basis)

First half-yearly Distribution Payment Date 24 September 2015

Optional Exchange Date 24 March 2023 Mandatory Conversion Date[[2]] 24 March 2025

Mandatory Conversion Date[[2]]

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