Mercury NZ : launches capital bond offer

STOCK EXCHANGE LISTINGS: NEW ZEALAND (MCY) / AUSTRALIA (MCY)

NEWS RELEASE

Mercury launches capital bond offer

2 May 2022 - Mercury NZ Limited (Mercury) confirmed today that it is offering up to $200 million (with the ability to accept oversubscriptions of up to an additional $50 million at Mercury's discretion) of unsecured, subordinated capital bonds (Capital Bonds) to institutional investors and New Zealand retail investors.

The offer opens today and is expected to close on 5 May 2022, with the Capital Bonds expected to be issued on 13 May 2022.

The indicative margin range for the Capital Bonds to the First Reset Date (13 May 2027) is 1.70% to 1.85% per annum (subject to a minimum interest rate of 5.50% per annum). An announcement of the actual margin (which may be above or below the indicative margin range) and interest rate to the First Reset Date will be made following a bookbuild process, expected to be completed on 5 May 2022 and announced via NZX shortly thereafter.

The Capital Bonds are expected to be rated BB+ by S&P Global Ratings.

There is no public pool for the offer, with all of the Capital Bonds being reserved for clients of the Joint Lead Managers, NZX participants and other approved financial intermediaries.

Full details of the offer are contained in the indicative terms sheet which is attached to this announcement together with an investor presentation.

Copies of the indicative terms sheet and investor presentation have also been provided to NZX with this announcement.

Joint Lead Managers

0800 367 227
ENDS
Howard Thomas
General Counsel and Company Secretary
Mercury NZ Limited
For investor relations queries, please contact:	For media queries, please contact:
William Meek	Shannon Goldstone
Chief Financial Officer	Head of Communications
0275 173 470	Media phone: [phone]
ABOUT MERCURY NZ LIMITED

0800 284 017

0800 226 263

Mercury's mission is energy freedom. Our purpose is to inspire New Zealanders to enjoy energy in more wonderful ways and our goal is to be New Zealand's leading energy brand. We focus on our customers, our people, our partners and our country; maintain a long-term view of sustainability; and promote wonderful choices. Mercury is energy made wonderful. Visit us at:www.mercury.co.nz

INDICATIVE TERMS SHEET.

CAPITAL BONDS 2022.

INDICATIVE TERMS SHEET.

Dated 2 May 2022

This indicative terms sheet ("Terms Sheet") sets out the key terms of the offer ("Offer") by Mercury NZ Limited ("Mercury") of up to NZ$200 million (with the ability to accept oversubscriptions of up to an additional NZ$50 million at Mercury's discretion) unsecured, subordinated, interest bearing capital bonds maturing on 13 May 2052 ("Capital Bonds") under its master trust deed dated 4 April 2003 (as amended from time to time) ("Trust Deed") as modified and supplemented by the supplemental trust deed dated 2 May 2022 (together, "Trust Documents") entered into between Mercury and The New Zealand Guardian Trust Company Limited as supervisor ("Supervisor"). Unless the context otherwise requires, capitalised terms used in this Terms Sheet have the same meaning given to them in the Trust Documents.

Accordingly, the Capital Bonds are the same class as the MCY020 Bonds for the purposes of the FMCA and the Financial Markets Conduct Regulations 2014.

Mercury is subject to a disclosure obligation that requires it to notify certain material information to NZX Limited ("NZX") for the purpose of that information being made available to participants in the market and that information can be found by visitingwww.nzx.com/companies/MCY.

The MCY020 Bonds are the only debt securities of Mercury that are in the same class as the Capital Bonds and are currently quoted on the NZX Debt Market.

Investors should look to the market price of the MCY020 Bonds referred to above to find out how the market assesses the returns and risk premium for those bonds.

IMPORTANT NOTICE

The Offer of Capital Bonds by Mercury is made in reliance upon the exclusion in clause 19 of schedule 1 of the Financial Markets Conduct Act 2013 ("FMCA").

The Offer contained in this Terms Sheet is an offer of debt securities that have identical rights, privileges, limitations and conditions (except for the interest rate and maturity date) as Mercury's NZ$300 million unsecured, subordinated, interest bearing capital bonds with an interest rate of 3.60% per annum and a final maturity date of 11 July 2049, which are currently quoted on the NZX Debt Market under the ticker code MCY020 ("MCY020 Bonds").

Investors should carefully consider the features of the Capital Bonds which differ from the features of a standard senior bond. Those features include the ability of Mercury to defer interest, optional redemption rights for Mercury, a margin step-up and the subordinated nature of the Capital Bonds. Investors should read this Terms Sheet carefully (including the risks discussed on page 10) and seek financial advice before deciding to invest in the Capital Bonds.

Issuer

Mercury NZ Limited.

Description

The Capital Bonds are unsecured, subordinated, redeemable, cumulative, interest bearing debt securities.

Ranking

The Capital Bonds will rank equally among themselves and will be subordinated to all other indebtedness of Mercury, other than indebtedness expressed to rank equally with, or subordinate to, the Capital Bonds. The Capital Bonds rank equally with the MCY020 Bonds. See Ranking on liquidation on page 6.

Purpose

The proceeds of the Offer are intended to be used to refinance drawn debt relating to the acquisition of Trustpower Limited's retail business ("Trustpower Retail") and for general corporate purposes.

No guarantee

Mercury is the issuer and the sole obligor in respect of the Capital Bonds. None of the Crown, any subsidiary of Mercury or any other person guarantees the Capital Bonds.

Further indebtedness

Mercury may incur finance debt without the consent of holders of Capital Bonds ("Bondholders").

Equity content

S&P Global Ratings is expected to assign "intermediate" equity content to the Capital Bonds. Where such equity credit content is assigned, S&P Global Ratings will consider that the Capital Bonds comprise 50% equity when calculating its financial ratios for Mercury.

The equity content is expected to fall to minimal (0%) on 13 May 2032.

Capital structure

Mercury believes that hybrid securities such as the Capital Bonds that are ascribed equity content are an effective capital management tool and intends to maintain such instruments as a key feature of its capital structure going forward.

Credit rating

Issuer Credit Rating	Expected Issue Credit Rating
S&P Global Ratings	BBB+ (Stable)	BB+

Mercury's current Issuer Credit Rating includes a one-notch uplift from the company's stand-alone credit profile of 'bbb' reflecting the legislated majority ownership by the New Zealand government. The New Zealand government does not guarantee the Capital Bonds and is under no obligation to provide financial support to Mercury.

The expected Issue Credit Rating of the Capital Bonds is two notches below Mercury's stand-alone credit profile. One notch is deducted for the Capital Bonds being subordinated and a second notch because of the potential for interest payments to be deferred.

A credit rating is an independent opinion of the capability and willingness of an entity to repay its debts (in other words, its creditworthiness). It is not a guarantee that the financial product being offered is a safe investment. A credit rating should be considered alongside all other relevant information when making an investment decision.

A credit rating is not a recommendation by any rating organisation to buy, sell or hold Capital Bonds. The above Issuer Credit Rating is current as at the date of this Terms Sheet and any credit rating may be subject to suspension, revision or withdrawal at any time by S&P Global Ratings.

Offer

Mercury is offering up to NZ$200 million (with the ability to accept oversubscriptions of up to an additional NZ$50 million at Mercury's discretion) of Capital Bonds to New Zealand retail and certain institutional investors.

The Offer will be conducted on a firm allocation basis as described in more detail below under the headings Who may apply for Capital Bonds and How to apply.

Term

30 years (maturing 13 May 2052) unless redeemed earlier.

Issue Price and Principal Amount

NZ$1.00 per Capital Bond.

Interest Rate from the Issue Date to the First Reset Date

The percentage per annum equal to the Benchmark Rate (determined on the Rate Set Date) plus the Margin but subject to a minimum Interest Rate of 5.50% per annum for this period.

Benchmark Rate

The mid market NZD swap rate for a 5 year term determined according to market convention on the Rate Set Date and at or around 11.00am New Zealand time on each Reset Date, in each case with reference to Bloomberg page 'ICNZ4' (or any successor page) and expressed on a quarterly basis (rounded to 2 decimal places, if necessary, with 0.005 rounded up).

Margin

The indicative Margin range is 1.70% to 1.85% per annum for the Capital Bonds.

The actual Margin for the Capital Bonds (which may be above or below the indicative Margin range mentioned above) will be set by Mercury (in consultation with the Joint Lead Managers) on the Rate Set Date following a bookbuild conducted by the Joint Lead Managers and will be announced by Mercury via NZX on the Rate Set Date.

Payment of interest

Interest will be payable on an Interest Payment Date to the Bondholder as at the Record Date immediately preceding the relevant Interest Payment Date.

Interest Payment Dates

Interest shall be paid quarterly in arrear on 13 February, 13 May, 13 August and 13 November of each year. Interest accrues on the Capital Bonds until (but excluding) the date on which they are redeemed.

The First Interest Payment Date is 13 August 2022. As the First Interest Payment Date is a Saturday, interest is payable on Monday 15 August 2022 instead.

Interest may be deferred at the option of Mercury - see Discretionary deferral of interest on page 5.

Record Date

In relation to payments of interest, the date which is 10 calendar days before the due date for the payment. In relation to an Election Process (as defined below), the date which is two Business Days prior to the date on which the applicable Election Notice (as defined below) is given. In either case, if that date is not a Business Day, the Record Date will be the preceding Business Day.

Reset Dates

The First Reset Date for the Capital Bonds is the date that is five years after the Issue Date (13 May 2027). Thereafter, there is a further Reset Date every five years. As part of a Successful Election Process, a different Reset Date may be adopted.

Interest Rate after each Reset Date

The Interest Rate applying from each Reset Date up to but excluding the next Reset Date will be the percentage per annum equal to the then Benchmark Rate on that Reset Date plus the Margin plus the Step-up Margin. If a Successful Election Process has been completed, the Interest Rate after each Reset Date will be as set out in the relevant Election Notice (as defined below).

Step-up Margin

0.25%.