pSydney, Feb 16:  Citigroup plans to issue more Kangaroo bonds this year, a top ex

Sydney, Feb 16: Citigroup plans to issue more Kangaroo bonds this year, a top executive at the bank said, underscoring the attractiveness of the cash-rich Australian market for foreign borrowers right now.

Citigroup, the United States' biggest bank, has already tapped the Australian market this month with A$1.55 billion ($1.2 billion) in five- and 10-year bonds. It was the first of four major U.S. financial institutions to visit this year, selling a total A$5.1 billion in debt so far.

''We will come back unquestionably to the market this year,'' said Charles Wainhouse, who heads Citigroup's treasury in New York.

Wainhouse said the bank would consider longer maturities,such as 30 years, to help meet the bank's annual funding requirements of US$28 billion to US$33 billion.

''But the difficulty is with the [Australian inverted] yield curve. It has not been agreeable with investors,'' he said.

Although inverted yield curves also prevail in other developed bond markets, Wainhouse added the U.S. yield curve is not as extremely inverted as in Australia.

Currently, 10-year bond yields in Australia are 21 basis points below three-year yields, compared with just 2 basis points under in the U.S.

Wainhouse said he would also consider selling straight subordinated debt in Australia following Bank of America Corp.'s lead early in February.

Bank of America sold A$200 million in 10-year non-callable subordinated debt as part of a A$1.2 billion Kangaroo bond offer.

This was the first time a financial institution had raised a straight 10-year sub debt lower Tier II in Australia. Until then, institutions typically opted for a structure that included a call date, usually five years, after which the margin steps up should the bonds not be called.

However, stringent regulations from the U.S. Federal Reserve make it difficult for U.S. financial institutions to sell callable step-up sub debt.

Instead, they tend to issue straight sub debt.

Wainhouse said Citigroup had considered issuing A$ straight 10-year sub debt, but up to now such deals had proved too expensive.

''We did not particularly care for the economics,'' Wainhouse said, though he said the bank would consider similar deals in the future.

Although Australian dollar-denominated debt represents a small proportion of Citigroup's outstanding debt of US$167 billion, it is the fourth-largest contributor in non-US dollars, after the euro, sterling and yen.

''One thing that is very notable, is that out of our borrowing so far this year, 14.7 percent is in Australian dollars,'' Wainhouse said. Citigroup has raised just over US$8 billion in bonds so far this year.

Wainhouse said the deal earlier in the month had drawn a wide range of investors. A total of 45 investors participated, including an unnamed North Asian central bank which bought Citigroup's bonds for the first time.

By investor type, 27 percent of the paper in the deal went to asset managers, 47 percent to banks and brokerage houses, 15 percent to government entities, 4 percent to insurance companies, 2 percent to money managers and 5 percent to unspecified investors.

By geography, 75 percent was placed in Australia, 10 percent in the UK, 8 percent in Singapore and 7 percent in Hong Kong.

($1=A$1.28)

Reuters