The bonds issue will help pay for the city art gallery's $133 million revamp. Photo / Glenn Jeffrey
The bonds issue will help pay for the city art gallery's $133 million revamp. Photo / Glenn Jeffrey
KEY POINTS:
Auckland City Council is looking to raise $200 million in bonds to refinance some short-term debt and cover new borrowing for projects including the $113 Auckland Art Gallery upgrade.
The retail bond issue in March will be open to private and wholesale investors, plus wholesaler investors -suchas banks - for a term of seven years at a "competitive rate of interest", which is still to be set.
The council is going down the retail bond path because of uncertainty and volatility in financial markets and because of a law change this year encouraging councils to return to the retail debt market.
The Tauranga City Council has raised $50 million from a fully subscribed five-year retail bond issue at an interest rate of 7.05 per cent.
Auckland City finance committee chairman Doug Armstrong said the bond issue was about managing the city's finance in a prudent way during a difficult time.
"Bonds are an effective method for any organisation to raise funds and borrow money," Mr Armstrong said.
Council officers considered various debt funding options, including retail bonds and borrowing from banks or from overseas.
Mr Armstrong said market conditions and demand indicated a retail bond issue had the greatest likelihood of raising the money required by the council at an appropriate cost.
In March, the council and its water company Metrowater will be looking to refinance $115 million in debt and to borrow $140 million for the remainder of the 2008-2009 financial year for capital projects.
Jeff Matthews, a senior adviser with Spicers Portfolio Management, said retail bonds were a good way for councils to spread their funding base and, depending on how they are priced, a good investment.
"I don't think any council in New Zealand has ever defaulted on its bonds," he said.
