Continuous Disclosure: High demand for Auckland Council bond, dividend drop and IPO warning

Auckland Council's NZX-listed bond is the first 30-year bond ever to hit the New Zealand market. Photo / File

Record bond offer

Investors can expect to see more long-term bonds after Auckland Council's record-breaking offer this week.

The NZX-listed bond is the first 30-year bond to hit the New Zealand market. It raised $200 million more than its initial $300m target.

David McLeish, head of fixed interest at Fisher Funds, says the 2.95 per cent annual rate was highly attractive for investors peering down the barrel of a negative official cash rate next year, and ever-falling term deposit rates at the bank.

"People are looking at the near-term future, the next one, two, three years - {thinking} 'I can lock that in and I will worry about it if interest rates rise after that period of time but certainly over the next few years that is going to look like a really attractive level of interest for me'."

McLeish says although the 30-year timeframe is a first for New Zealand, it is common overseas where bond terms can stretch out to 100 years.

Thirty years is long timeframe to estimate where interest rates are going to go, and in 10 or 20 years 2.95 per cent could look low.

McLeish says even professional managers like himself can't predict where rates are going to go that far out.

"Anyone investing over a 30-year time period is going to struggle with comprehending what the world might look like and what the interest rate environment will look like over that period of time.

"We, as an asset manger and investor, are humble enough to realise we can't judge that either."

But he points to where interest rates have gone in the past 35 years.

"They have fallen pretty much consistently. It is very hard to see, when you get to these interest rate levels, to think that we could keep falling for another 30 years of course, but again, I think most investors are making those decisions based on the next few years not the next 30 years."

Investors can also sell the bonds on the secondary market in a few years, given that they are listed.

McLeish says a long-term bond offer suits the likes of Auckland Council because it also has long-term assets and infrastructure.

"There are not many companies out there, or borrowers more broadly, that have those long-dated assets that they would match with long-dated liability."

But he says others such as national grid operator Transpower, other councils or even the government itself could look to do a 30-year bond.

The Government has just issued a bond set to mature in 2041, and the Local Government Funding Agency has issued one until 2037.

"I would imagine in the next year or two we are going to see a 2050 bond [from the Government]. There is going to be more and more of this."

Corporate borrowers have pushed bond terms out to 10 years in recent months but are not likely to go beyond that.

"The other thing we have to remember is when an investor is making a decision on a bond such as this, the security of receiving that 2.95 per cent is very important - and having that certainty over 30 years - you need to have a very stable business for investors to hand over that money for that period of time."

Dividends down

Many companies have put their dividends on hold or reduced them amid the uncertainty surrounding Covid-19.

A tally of dividends from the June quarter has revealed they were down 30 per cent on the same quarter last year for NZX50 companies, with $642 million less going into the pockets of shareholders.

The figures could be even worse for the September quarter, with many companies having a June 30 balance date.

Dividends from the June quarter are down compared with the same quarter last year among NZX50 companies. Photo / 123RF

No wonder investors are searching out any sniff of the promise of a dividend.

One upside of the lack of bank dividend payouts has been a positive contribution to New Zealand's current account balance.

The four major Australian-owned banks are barred from paying dividends by the Reserve Bank of New Zealand, so that money has stayed in this country.

Frothy listings

It's open season on initial public offers at the moment - everywhere, it seems, but on the NZX.

But it appears retail investors may be missing out on many of the gains.

Kristen Lunman, chief executive of investment platform Hatch, which gives Kiwis access to US stocks, says the house appears to be stacked against retail investors.

She points to US cloud software IPO Snowflake, which was priced at US$120 a share for its IPO and then popped up more than 111 per cent on its market debut on the New York Stock Exchange on Wednesday in the largest-ever software IPO.

"Was Snowflake priced correctly? The huge spread might indicate it wasn't - at one point, the exchange had to stop trading due to volatility."

Lunman says it was disappointing there wasn't an upside for retail investors.

"The upside ended up in the hands of the institutional investors [big banks]. The perception is that retail investors might flip stocks - but it doesn't seem fair that nothing is left for retail investors at an IPO."

Lunman says many Kiwi investors on Hatch were up on Wednesday night waiting for the listing, but most opted not to take the plunge.

In recent years the price rise on the first day of an IPO has averaged around 14 per cent but this year it is 36 per cent, Lunman says.

Some tech companies are seeing a gain of more than 100 per cent on their first day of trading, with demand so high for these businesses.

"But buyer beware: post first-day returns that popped 100 per cent had an average 1 per cent return after day one."

Retail wave

Kathmandu is expected to be another retailer to benefit from the pent-up consumer demand released after the first lockdown when it reports its full-year result next Wednesday.

But analysts will be closely watching how the business has performed in Victoria during the state's second lockdown and how well it has bedded in recently acquired surfwear business Rip Curl.

Forsyth Barr analyst Guy Hooper, who has an outperform rating on the stock, is forecasting net profit after tax of $36.4 million, down from $56.8m in the prior year.

Kathmandu is expected to benefit from the pent-up consumer demand. Photo / Supplied

"We suspect Kathmandu has been a beneficiary of timing (relative to other retailers) with a post-lockdown spending surge coinciding with its key winter sales period. Category spend data suggests outdoor retailers should be outperforming general retail."

But changes in social distancing restrictions in key markets have also created a level of uncertainty, he noted.

Like other retailers, Kathmandu has seen online sales surge amid Covid-19. Over the six weeks to June 28, online sales were more than 20 per cent of its direct to consumer sales - up from around 10 per cent pre-Covid.

Hooper noted that Kathmandu had also partnered with Uber in Melbourne to offer same-day delivery, with plans to expand that.

With a nine-month contribution to the financial year, the contribution of Rip Curl would also be of interest.

"Rip Curl remains fairly new to investors. An update on group integration, wholesale channel experience, and order book will be of interest."