Insurance Australia : IAG launches Subordinated Notes offer

The Offer will open on 19 May 2016 and forms part of IAG's capital management strategy. The proceeds of the Offer will be used for IAG's general corporate purposes. The Notes have a final maturity of 15 June 2043. However, subject to conditions being met (including APRA's prior written approval being obtained), the Notes may be repaid earlier by IAG on scheduled optional redemption dates (being each quarterly interest payment date from 15 June 2022 to 15 June 2023) or if there is a change in the tax or regulatory treatment of the Notes.

If the Notes are still outstanding nine years after issue, holders may elect to convert their Notes into ordinary shares in IAG on the holder conversion dates (being each quarterly interest payment date from 15 June 2025 until the maturity date).

All or some of the Notes will convert into ordinary shares in IAG if a non-viability event occurs (or, if conversion does not occur, the Notes will be written off). A non-viability event could occur if IAG encounters severe financial difficulty. Interest is payable quarterly in arrears. Interest may not be paid if an interest deferral condition exists. Unpaid interest accumulates and is payable when the interest deferral condition no longer exists and in other circumstances.

The number of ordinary shares received on conversion will be based on a volume-weighted average price (VWAP) over a certain period, less a discount of 1%. The number of ordinary shares will be capped at a maximum number set by reference to the VWAP of ordinary shares at the issue date (50% of that VWAP for conversion at the holder's option and 20% of that VWAP for conversion on non-viability).

The interest rate for the first six years of the Notes will be a fixed rate. From then on the interest rate will be a floating rate that is set at three-monthly intervals to be equal to the margin and the applicable three month bank bill rate.

The indicative margin range for the Notes is 2.6% - 2.9% per annum. An announcement of the margin and initial interest rate will be made on or before the opening date.

IAG has appointed ANZ and Forsyth Barr as Joint Lead Managers, and BNZ, Deutsche Craigs, Macquarie Capital (New Zealand) Limited (acting through its affiliates) and Westpac Banking Corporation (acting through its New Zealand branch) as Co-Managers for the Offer. Holders of the existing bonds issued by IAG in 2011 can request those bonds be repurchased by IAG and the proceeds be reinvested in the Notes subject to availability.

There will be no public pool for the Notes. Potential investors in the Notes or holders of the 2011 bonds should contact a Joint Lead Manager, a Co-Manager or their usual financial adviser.

To obtain a free copy of the product disclosure statement (PDS) investors should contact a Joint Lead Manager, a Co-Manager or their usual financial adviser. A copy of the PDS is also available at www.iag.com.au (in the Shareholder Centre). There are restrictions on offering, issuing or selling the Notes outside New Zealand, as set out in the PDS.

The Notes are expected to be quoted on the NZX Debt Market.

The Notes are complex financial products and are not suitable for many investors. If you do not fully understand how they work or the risks associated with them, you should not invest in them. You should read the PDS and you can seek advice from a financial adviser to help you make an investment decision.

The Notes will not be registered under any US securities laws, and may not be offered or sold in the United States or to or for the account or benefit of any US persons (as defined in the US Securities Act). No action has been taken to permit a public offer of Notes in Australia or any place other than in New Zealand. Notes may only be offered for sale in compliance with all applicable laws and regulations.