University bond issue $50 million

A philanthropic bond issue by the University of Canterbury has attracted $50 million in investments but did not attract any interest in an additional $50 million on offer in oversubscriptions.

The $1 bond issue was the first offered by a New Zealand tertiary institution and started trading on the New Zealand stock exchanges' debt market on Tuesday, but there have been no oversubscription trades.

Craigs Investment Partners broker Peter McIntyre said the university should be happy with the $50 million raised, noting several minor issues were likely to have contributed to the lack of interest in oversubscriptions.

New Zealand markets in general had many bonds and issues on offer for investors to consider, there was no credit rating with the university bond and some conservative investors may have misunderstood its status as a "first-time" philanthropic offer, he said.

"[However] it was very innovative for Canterbury.

"It's a good sector; being New Zealand's ultimate destination for engineering students," Mr McIntyre said.

Bond investors would be paid 7.25% interest for five years, with the interest rate then reset for a further five years, and they would be entitled to full repayment when the bonds matured in 2019.

During the next 10 years, Canterbury planned to invest up to $500 million in infrastructure, including buildings, redevelopments, ICT infrastructure and alternative technologies across academic disciplines.

Mr McIntyre had raised concerns when the offer was launched (early in October) on repayment in 2019, but yesterday said this was likely be through cash flows at that time and also there would be an element of investor alumini gifting the bonds to the university.

It has already been reported by NZPA that a small number of investors had already decided to donate the bond principal to the university or had accepted lower interest rates.

Mr McIntyre said while the bonds did not carry a credit agency rating, they were a senior issue, which ranked equally with the university's bank debt, with no subordination, meaning investors had secured creditor status.

Also, the university's power to borrow came under the Education Act, which required the secretary for education to sign off, and its own covenants meant its debt could not exceed 25% of a debt-plus-equity ratio.

"We will not be surprised if other universities take up a similar opportunity and appeal to their alumini in the future," Mr McIntyre said.

The University of Otago had said it had no plans to offer bonds, but it was an option in the future if funds had to be raised.

Rod Carr, Canterbury university vice-chancellor, former Reserve Bank deputy governor and director (with law and commerce degrees with honours from the University of Otago) launched the bonds.

He said there were increasing numbers of universities overseas which were not only better equipped than New Zealand's, but were also investing substantially more in teaching and research.