'Conduit' Manukau City in first of Auckland super city bond issues

'Conduit' Manukau City in first of Auckland super city bond issues

The new Auckland super city council, which faces more than NZ$500 million worth of debt maturities over the next 12 months, is likely to use retail bonds as a major source of funding with its initial bond issue likely in the first half of 2011.

The new Auckland Council, set to take shape from November 1, is however effectively already launching a bond offer this week. The proceeds from a seven-year, senior fixed rate bond offer from the Manukau City Council seeking up to NZ$350 million has opened this week. Proceeds will be divvied up among Auckland’s councils with the bonds being placed under the auspices of the new super city council from November 1.

“It (Manukau City) is almost just a conduit borrower,” says Andy Coupe, chairman of the integrated councils’ treasury group.

“The investors’ are investing in this on the basis that they’re ultimately investing in the (new) Auckland Council.”

Manukau is the issuer - of the initially unrated bonds to be secured by a charge over rates revenue - because it’s the only existing Auckland council filing interim accounts. That means it’s the only one that can lodge a prospectus at the moment.

“The money will get palmed out to whichever council needs it because they’ve all got refinancing,” adds Coupe.

D-Day is November 1

The new Auckland Council comes into existence on November 1 replacing the current eight councils in the Auckland region, - the Auckland Regional Council, Auckland City Council, Franklin District, Manukau City Council, North Shore City Council, Papakura District Council, Rodney District Council and Waitakere City Council.

Combined they face more than NZ$500 million of debt refinancing within a year and have major projects to fund, which the new council may want to help fund from sources other than rates. That means the first retail bond issue under the new Auckland Council name is likely during the first half of 2011, with the council likely to see the retail market as a key source of debt funding alongside bank borrowings and private placement funding.

The new council is likely to have a credit rating from a major international credit rating agency in place by November 1. And bonds it issues, including the current Manukau offer, are expected to be listed on the NZX debt market.

Combined, all the Auckland’s regions currently have about NZ$2.8 billion of bonds on issue. Coupe says bonds on issue from the different councils, such as North Shore, Auckland City and Manukau, will all rank equally under the new super city council from November 1.

Meanwhile the Manukau offer, (see the investment statement here), is seeking NZ$250 million plus up to NZ$100 million of oversubscriptions. The bonds will be issued at NZ$1 each with the minimum amount investors' can subscribe for set at NZ$5,000. The interest rate will be set after a book build this week.

The bonds will be issued on September 29 with interest paid twice a year. They are set to mature on September 29, 2017. Arrangers and book runners for the offer are the ANZ and Craigs Investment Partners.

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Run like buggery Peter....and don't leave your wallet behind.