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Tower just gets minimum for bond offer

Tower Capital completed its bond sale with minimal over-subscriptions as the insurer and fund manager struggled to entice investors with an 8.50% interest rate.

Tuesday, March 24th 2009, 10:58PM

by Jonathan Underhill

Tower raised $81.7 million of the April 2014 bonds, less than the maximum $100 million it was willing to issue including over-subscriptions. Tower will use the funds to repay bank debt.

The sale contrasts with New Zealand Post Group Finance’s offering, which investors snapped up without the need for a public pool, raising $200 million. Post set the rate at 7.50% for its bonds, which have an A rating with Standard & Poor’s.

Investors also clamored for Fonterra’s $300 million of six-year bonds paying a minimum 7.75%. Tower’s bonds are unrated though the company has a BBB- rating with AM Best Company.

“Tower isn’t a Fonterra or an NZ Post,” said Alan Moore, who helps manage $250 million at Milford Asset Management. “Tower looks as if it’s going alright but there’s been a lack of market confidence.”

Companies have lined up to sell bonds to investors unhappy to park their money in dwindling deposit rates. Vector, New Zealand’s second largest electricity and gas distributor, this week said it is eyeing the debt market to raise funds. Contact Energy, and Auckland International Airport have tapped the market, taking advantage of demand for higher rates to strengthen their balance sheets.

ANZ Bank is offering 3.50% on a two-year term deposit for amounts over $5,000. Bank of New Zealand offers just 2% and Kiwibank offers 5%, according to the Good Returns website.

Tower Group managing director Rob Flannagan said he is very pleased with the sale “in the current market conditions.” The debt will give Tower “a stable funding base for the next five years.”

« Vector may sell $150m of five-year bondsFonterra may sell more NZ bonds amid strong investor demand »

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