First debentures exchange opens for business in NZ

By ELLEN READ markets writer

An Auckland financial services company has set up the country's first secondary market for New Zealand-registered debenture stock.

Canopus Investments is calling its online market the New Zealand Debentures Exchange.

Managing director Alan King said it offered investors the chance to make a capital gain from holding a debenture.

Debentures are debt securities backed by the general creditworthiness of the issuer rather than giving the investor a claim to any specific asset.

They are issued via a registered prospectus. The secondary market now allows them to be traded publicly.

Previously most debenture holders were able to cash in their stock with the issuer only under exceptional circumstances and then only at a significant discount.

But by listing the stock for sale on the new secondary market, sellers may be able to realise a capital gain reflecting factors such as the original interest rate, the subsequent movement of interest rates in general, time to maturity and quite possibly the increasing stability and market recognition of the issuing company itself, King said.

From a buyer's point of view, the secondary market offered the opportunity to buy secured debenture stock providing a higher income over a shorter investment period than might be available elsewhere.

So far, six buy orders had been posted on the exchange but this was just a sample of what he had available. No sellers had come forward but this was probably because they did not know the market existed.

King said that because the market was internet-based he could run it at minimum cost and the brokerage could be kept low at 0.3 per cent.

If the exchange proved viable, he would consider adding capital notes and subordinated debt to the listings but he was not interested in competing with securities already listed on the New Zealand Stock Exchange.

Debentures