Capital notes: who's offering what

The capital note craze was kicked off in July by Guinness Peat Group, with the biggest issue of this kind in New Zealand.

The company offered investors 9 per cent and raised $250 million in total. Guinness Peat says the offer was so popular it could have sold twice as much.

The funds raised by the notes offer are to be used as a "war chest' for future acquisitions.

Among the other recent offers:

* Edison Mission Energy is seeking $250 million in redeemable preference shares. The company chose this device for funding Edison's 50.1 per cent stake in Contact Energy and to pass imputation credits which Edison can't use on to New Zealanders. The shares are paying 9 per cent gross - effectively 6.03 per cent with full tax imputation credits - and mature in July 2006.

* Sky Network Television sought up to $125 million in capital notes and received $110 million. Sky shareholders subscribed for only $1.1 million of the $15 million set aside for them. The notes are paying 9.3 per cent and mature in October 2006.

Company officials said the issue would be used to replace existing debt, but the prospectus said the funds would be used to finance Sky's ongoing business growth.

* Chemicals company Nufarm, formerly Fernz, is seeking up to $250 million in capital notes, $80 million of it new money and the rest to replace existing debt. These notes are paying a minimum of 8.5 per cent. The rate will be set at the five-year swap rate plus 1.85 per cent, or "such greater rates as Fernz might determine".

* Commercial printer Blue Star group is seeking up to $50 million in subordinated bonds.

These notes are paying 10.75 per cent and mature in October 2008. The funds raised from the issue will repay bridging finance provided by CSFB for a management buyout and expansion.

* National Property Trust is seeking $25 million in capital notes. These will pay a minimum of 9 per cent (the rate is to be determined when the notes are issued). They will mature in November 2010. The funds will finance the redevelopment of the Eastgate shopping centre in Christchurch.

* The latest offer is from dairy company Fonterra, which is offering $200 million in perpetual notes. The difference between perpetual notes and capital notes is that the latter have a maturity date, while the perpetual ones keep going indefinitely.

This potentially creates an issue for investors, as the only way they can cash up their notes is to find someone to sell them to.

They are one of the few offerings that has a credit rating, with an "A+" grading from Standard & Poor's.

Fonterra's notes are paying a minimum of 7 per cent. The actual rate will be the one-year Government bond rate plus 1.7 per cent.

Fonterra's notes provide the first opportunity for non-dairy farmers to invest in the country's largest company and biggest export earner. It also provides an exit mechanism for existing dairy farmers.

* Arthur Barnett subsidiary Meridian Centre, a Dunedin shopping centre, sold $22 million of perpetual capital notes which are paying investors 10.5 per cent. The money raised was used to repay existing debt.