By Gareth Vaughan Transpower has raised NZ$100 million through a sale of inflation index linked bonds to institutional investors and the offer's manager, Westpac Institutional Bank, now has its sights set on retail investors for future consumer price index (CPI) linked bond offers. Rod Smith, head of debt capital markets at Westpac Institutional Bank, told interest.co.nz the book was being closed on the Transpower offer with NZ$100 million secured from domestic institutional investors. The national grid operator, the first New Zealand company to offer investors' bonds directly linked to the CPI, had been seeking a minimum of NZ$75 million and up to NZ$100 million if demand proved good. "We've got there," Smith said. "It's an endorsement of our punt to go down that (CPI linked bond) route." The 10-year bonds will be issued on Monday. They will pay interest of 4.115% on the principal investment on each quarterly payment date with the principal ratcheting up by reference to CPI, meaning the cash interest amount payable is also increased. Smith said Westpac had received feedback from retail brokers and financial planners suggesting they would "relish" an investment product offering steady income plus inflation protection in an environment where inflation is expected to tick up. Consequently the bank was now eyeing the retail, mum and dad, investor market for future CPI linked bond offers. Before doing so, however, Westpac would need to spend some time and money, including on legal advice, clarifying the tax position for retail investors who buy CPI linked bonds. Grant Williamson, a director at sharebroker Hamilton Hindin Greene, welcomed the prospect of CPI linked bonds being offered to retail investors. "I think it would be a welcome addition for retail investors. I think there would be quite good demand for an instrument like that," Williamson said. He noted that this was against an international backdrop of concern over the extra supply of money in some economies, given steps taken to alleviate the global financial crisis and European sovereign debt concerns, and just what this might do to inflation. "I also think in New Zealand, as we enter a new period of recovery and economic growth, investors would certainly be pretty keen on a product like that that was linked to the CPI." CPI for the year to March was 2%. The Reserve Bank is required to keep inflation between 1 and 3% on average over the medium term. This was first published this morning in our Daily Banking and Finance newsletter, which is for our paying subscribers. Find out more here.
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