The Auckland City Council has approved plans to offer a AA rated 7 year retail bond to raise NZ$200 million.

"A retail bond issue will give ratepayers and other investors the opportunity to participate in Auckland city's future development and growth by investing in a portion of Auckland City Council's debt, and receiving a competitive rate of interest," the City Council said.

"Debt, when well managed, is a fair way to fund capital projects in the city, as the cost of large projects is spread across current ratepayers as well as those who will benefit in the future. Bonds are an effective method for any organisation to raise funds and borrow money. The retail bond issue will be used to increase funding certainty by refinancing existing short-term debt and covering the remainder of the current financial year's borrowing requirements. for a term of seven years," Councilor Douglas Armstrong, chairperson of the Finance and Strategy Committee said.

Earlier this year, the Securities (Local Authority Exemption) Amendment Act was passed with the intention of encouraging local authorities to return to the retail debt market.

The issue is the latest in a slew of retail bond offers by corporates unable to access the usual pension fund customers because they are not government guaranteed. Corporates with well known brand names are however finding strong demand among retail investors hunting for yield now that term deposit and debenture rates offered by banks and finance companies have slumped in line with the Official Cash Rate.

* This article was first published yesterday in our daily subscription newsletter for the banking and finance industries. The email costs NZ$365 per annum and carries exclusive news and analysis for New Zealand banking and finance industry executives, regulators and investors. Sign up for a free trial here.