Macquarie launches international commodity bonds

Macquarie Equities has launched a bond offering for funds to invest in overseas commodities, giving investors a chance to avoid specific risks in the New Zealand economy.

Macquarie said today the initial public offering for the so-called commodity bonds was for $100 million with oversubscriptions of a further $100 million, with a minimum investment of $5000.

Lead managers Forsyth Barr, Greenslades and Maquarie Equities NZ had already given firm commitments to take more than $50 million worth of bonds.

The bonds would have a coupon paying a fixed interest at a minimum rate of 8.2 per cent a year for five years, and would be given a credit rating by leading credit rating agency Standard & Poor's on the issue date of September 7.

Trading of the bonds on the New Zealand Stock Exchange was provisionally scheduled to begin on September 14.

TCW Asset Management Company, a subsidiary of European investment bank had been appointed as manager of commodity bonds' underlying investments.

Macquarie's Financial Services Group head of alternative assets Craig Swanger said the commodity bonds were able to offer a higher interest rate than other traditional fixed income investments because of the commodity price risk to their principal.

Repayment of principal on the commodity bonds depended on the prices of the commodities selected by the manager staying above specified levels, he said.

Most of those levels were lower than historic record low prices, in real dollar terms.

Historically, corporate issuers with the credit rating expected for commodity bonds experienced a credit default rate of about 0.5 per cent.

A credit rating was a definition of the expectation of default risk, Mr Swanger said.

"We won't be issuing unless we're happy with the risk, and we won't be issuing unless there's a 99-1/2 per cent chance you're going to get everything back at maturity, and all the coupons along the way."

With the commodity bonds the underlying risk, which generated cashflow, was not linked to the New Zealand economy, he said.

Almost all other fixed interest securities available in this country had a strong link to the New Zealand economy.

"With this particular investment, because it's going into precious metals, base metals and energy, there's no correlation between any of those and the New Zealand economy," Mr Swanger said.

Macquarie head of Financial Services Group in New Zealand John Rowley said the launch of the bonds could not have come at a better time as clearly there was a "huge amount of discussion around finance companies and are they appropriate for portfolios?"

While Macquarie was not making a judgment on that, it was launching a product with a credit rating and diversification.

"An intriguing factor in New Zealand is the large amount of cash looking for somewhere to go to," Mr Rowley said.

- NZPA