Hybrid investors taking an e-gamble

By BRIAN FALLOW

WELLINGTON - A $US1 billion bond offering by e-commerce start-up Global-e Investments is an innovative hybrid pitched at several investor instincts at once.

First is the desire to get one's money back - eventually.

About a third of the $US1060 ($2200) cost of a bond is set aside to be invested in zero-coupon United States Government bonds under the supervision of the trustee Tower Trust. That is intended to ensure that in 2020 investors get $US1200 back, representing a return of 1 per cent a year.

A further 40 per cent of the money will be set aside, again in the keeping of the trustee, to fund a stream of prizes, appealing to a straightforward gambling instinct.

The promotional material talks of paying out $US10,000 a day in prizes, once a threshold of $US25 million has been invested. The daily prizes rise to a maximum of $US50,000 a day when the bond is fully subscribed.

But that is dependent on a sufficient inflow of investment cash. The money for the prize pool will also be held by the trustee and has to fund a stream of prizes over the 20-year life of the bond. If the cashflow is insufficient there are provisions for the prizes to be scaled back.

The remainder of the investors' money will be used to build the internet portal - appealing to those who want to take a punt on the e-commerce gold rush. Bondholders also get options to buy an equity stake in the company for a token further outlay, but not until August 2002.

The bondholders will form an "e-commerce community" offered various goods and services.

The more bondholders there are the worse their odds of winning a prize, but the greater the number of eyeballs Global-e can offer to companies seeking their business.

In effect investors are staking the time value of the money they invest in two ways: a Bonus Bonds-like prize draw and an eventual shareholding in an e-commerce start-up.

The company is seeking, but has not yet secured, a ruling from Inland Revenue on whether the prize payouts will be subject to a 15 per cent withholding tax.

It is also likely to attract the interest of the Securities Commission.

If the minimum of 25,000 bonds have not been sold by July 7, 2000, all the money will be refunded.