Interest in corporate debt reigniting

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Dwindling prospects for further interest rate hikes by the Reserve Bank this year may stoke interest in corporate bonds as investors seek certainty of income.

Wednesday, September 8th 2010, 3:39PM

Economists have pared back their expectations for central bank Governor Alan Bollard's tightening track  this has reignited interest in corporate debt, with a flurry of small issuance in recent weeks, including Goodman Property Trust's private placement, Greenstone Energy, TrustPower, and Manukau City Council.

"There's an acceptance that the Reserve Bank looks to be on hold, and corporate bond deals are offering some value," he said. "With risk off, more investors are looking at income assets."

Debt issuance is way down in 2010, based on securities that trade on the NZX, with some $1.2 billion raised in the year through August, compared to $3.02 billion a year earlier, when interest rates were at record-low levels.

Hassell said corporate debt was looking more attractive than government debt, even with companies already tidying up their books in response to the global financial crisis, while many sovereigns were still in the process of doing so. 

Goodman's chief financial officer George Crawford said an institution asked the property investor to add a private placement to its $150 million retail bond last year, which it accepted to help push out its funding maturity profile.

 Goodman raised $45 million in a seven-year bond paying 7.58% per annum, compared to the 7.75% interest payment on the five-year retail bond which was launched last November.

Infratil-controlled TrustPower flagged an intention to raise up to $100 million, though it hasn't put a price on the offer, while the Infratil-NZ Super Fund joint venture Greenstone is looking to raise up to $200 million at an annual 7.35% for six years. Manukau City's seven-year issue is looking to raise $350 million at 6.45%. 

ING fixed interest manager Andrew Michl said the recent bond issuance was small, mainly soaking up what demand there was. Any large issuance will need to put up more attractive returns to bring in investors, he said.

"If they wanted to raise two or three hundred million, they'd need a higher offer," Michl said. "Seven and a half, eight percent for retail issuance would help it up."

Siphoning off demand for bonds is the deposit war among banks, which has pushed up 12-month rates to as high as 5.6%, according to Michl.

"You've got to get some premium to justify holding money out," he said.

Businesswire.co.nz

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