University breaks new ground with philanthropic bond issue
Philanthropic funds and supporting foundations often form the centrepiece of a tax-wise charitable plan for investors. However, the concept of giving is not always so popular during uncertain economic times.
But that hasn’t stopped the University of Canterbury, which recently launched this country's first philanthropic bond issue, offering a range of different options for investors.
The bond offer was fully subscribed, raising $50 million, and the securities were today listed on the NZX debt market.
The university plans to use the proceeds to accelerate its 10-year capital works programme and advance plans to spruce up its engineering and science precinct, including building new learning space and IT infrastructure.
The bonds have a 10-year maturity and have been priced at 7.25% for the first five years and then reset at 175 basis points over the swap rate for the second five-year term.
Investors can choose to put the interest rate back to zero on some or all of the bonds they acquire, effectively providing a gift to the university foundation by reducing the burden of interest.
Bondholders can then chose to re-fix back to the market rate at any time during six-month interest periods.
They can also choose to gift some or all of the bond principal to the foundation, which will act as a guardian to ensure the funds are administered for the right purposes.
Investors will continue to be paid interest on the full face value of the investment, even if they give back the principal.
"That means we can appeal to different people who may wish to keep control and choice over their investment and philanthropic intent because life is uncertain and you don't know how its going to turn out," Dr Rod Carr, vice-chancellor of the University of Canterbury explained.
Dr Carr said the funds would enable the university to refurbish its engineering and science precinct sooner than otherwise meaning it can keep up with increasing demand.
The university is targeting about 1400 additional full fee paying international students over the next five years while also reducing its student to staff ratio from 18 to 17.
Investors escape gift duty because the foundation is a charitable foundation and if they give up the principal they are entitled to the tax rebate associated with a charitable donation.
"We certainly think it's an opportunity to give New Zealanders an ability to invest directly in infrastructure for the benefit of current and future New Zealanders," Dr Carr said.