NZ Local Government Funding Agency's bonds oversubscribed

Wednesday 15th February 2012

NZ Local Government Funding Agency’s debut sale of bonds was 4.4 times overbid, showing there’s strong investor demand, though the successful yield range was higher than expected.

A total of $1.32 billion was bid for the $300 million of bonds on offer, the first for the agency set up to borrow on behalf of its 18 local authority owners. There were 105 bids submitted, according to the agency’s website.

The LGFA sold $50 million of April 15, 2015, bonds at a weighted average yield of 3.67 percent and $250 million of Dec. 15, 2017, bonds at an average yield of 4.61 percent, which was a spread of 78 basis points and 114 basis points respectively over comparable government debt. Both bonds pay a coupon of 6 percent.

“The yields were slightly higher than consensus, although that is to be expected for a difficult-to-price debut tender,” said Imre Speizer, market strategist at Westpac.

Speizer said spreads are likely to narrow versus government bonds as the “uncertainty premium” abates and more of the debt is sold, lifting liquidity to levels that would attract more offshore investors.

Local authority debt is forecast to more-than double to $11 billion in the next decade from about $5 billion now. The number of councils as members is expected to jump to 40 from 18. That would make it the second-biggest non-bank bond issuer after the government, Craig Stobo, LGFA’s chairman, has said.

The councils own 80 percent of LGFA and central government owns the balance. The authority will give councils the ability for the first time to borrow offshore, allowing them to tap markets where interest rates are lower. Auckland City, which is one of the members, can also borrow overseas in its own right because of its size.

Stobo has said the LGFA would consider overseas sales once it had completed its first local auction of bonds.

LGFA has an AA+ credit rating by Standard & Poor’s and Fitch Ratings - putting it on a par with the nation’s sovereign rating.

(BusinessDesk)

BusinessDesk.co.nz

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