Trade NZ fronts up over Global-e bonds

By Chris Hutching

Friday 7th April 2000

Trade New Zealand is standing by its decision to help the US principals of technology company Global-e Investments to set up in this country.

The company is promoting a bond offer where the main reward is the possibility of winning a cash prize. The investment will return 1% interest over a 20-year term.

The promoters are seeking a minimum of $25 million in this country by July 7 and ultimately $1 billion from investors internationally.

Most financial planners are advising clients that Global-e bonds should be a minor part of any portfolio and viewed as a punt like Bonus Bonds.

But the launch of the bonds raised questions about what sort of businesses Trade New Zealand should use its resources to attract here.

The government trade-promoting body said it was consulting with its lawyers and would take advice on "an appropriate course of action" about criticism it should not have assisted the bond company.

Trade New Zealand manager Gary Langford was overseas but answered through his staff. "Trade New Zealand does not offer 'grants' to potential investors. We facilitate the process to encourage the investor to choose New Zealand above other locations. This takes time and organisational skill from our staff in New Zealand and, in a more limited way, offshore."

The e-bond promoting company, MMC Management, initially contacted the Los Angeles consulate in August 1997 saying it wanted to locate in New Zealand or Ireland to set up a call centre and a back office administration centre to organise its bond issue. The company was registered in Auckland in May 1999, changing the name to Global-e Investments and refocusing on building an associated website. MMC paid $10,360 to Trade New Zealand for market research.

Trade New Zealand saw benefits for employment in the call centre and for senior managerial positions. Global-e says it employs 40 fulltime staff and contractors and will increase this once the first bond issue is completed. Other benefits Trade New Zealand identified include future tax on profits and direct investment to date of $4 million to fund the startup, including creating a website.

"Although this was not contemplated when we first gave assistance, a website was added to the mix, which may offer the opportunity for New Zealand exporters to benefit from the provision of products and services."

Nor did Trade New Zealand know Global-e would launch a major bond issue ultimately seeking $1 billion.

"The issue of the New Zealand balance of payments and trade balance was never relevant other than in a positive way (net inflow of capital and export of goods and services).

"The New Zealand-based company changed its business plan late last year to include the sale of a small number of bonds here. It had no obligation to consult with Trade New Zealand when making a normal commercial decision. Trade New Zealand had no influence on the change of plan. It is not Trade New Zealand's role to judge the ongoing business strategies of companies once they are located in New Zealand."

Research house Ipac Securities described the bonds as a gamble with odds of 137:1 and it questioned the value of associated share options being offered to give investors a stake in an internet company, Global-e Investments.

Ipac said Global-e Investment would need to grow as big as Telecom for the options to attain significant value. It also raised questions about whether a default could be covered in the early years of the bond term.

Meanwhile, Global-e bonds promoter Phillip Markwick said it was too early to tell whether negative reports had affected attempts to raise $25 million by the target date of July 7.

He said the fundraising was on budget and more brokers were still registering to distribute them, swelling the 60-odd brokers who had already signed up.

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