15 Feb 2012

Inaugural council bonds issue by agency

8:01 pm on 15 February 2012

A new bond bank for councils hopes to raise $300 million when it issues its inaugural bonds on Wednesday.

The Local Government Funding Agency was set up to cut the cost of borrowing for local councils and has been given an AA+ crediting rating - the same as the Government.

The agency is offering two bonds, one maturing in 2015 and the other in 2017. Both offer investors 6% interest.

The agency says it is confident of arranging at least $1 billion of debt in its first year and, with its high rating. It believes it should be able to access debt at a lower cost.

AMP Capital Investors head of fixed income Grant Hassell believes the bonds are a secure investment since councils have to put in equity before they can draw down on the fund.

He says councils in New Zealand have a strong and visible process of planning and, in the case of any problems, investors would have access to council reimbursement through guarantees as well as access to the equity they had put in.

As a last resort, restitution could be sought from ratepayers.

Mr Hassell believes the agency could save councils about 0.4% of interest on debt.

The 79 district and regional councils currently hold debt of $5 billion and are projected to increase borrowings to $11 billion over the next decade.