Bond market gets $5.6 billion boost

Local Government Funding Agency lists full range of council-backed debt securities.

A huge slab of local authority debt became publicly tradable today with the listing on the NZDX of $5.56 billion of bonds issued by the Local Government Funding Agency.

The bonds, rated AA+, cover a range of maturities from 2017 out to 2027 and carry a fixed coupon rate.

LGFA chief executive Mark Butcher said the development of the listing would make local authority debt more accessible for investors in New Zealand and overseas.

Since its creation in 2011 as a vehicle to help councils raise debt finance, the organisation had gone from zero to issuance of $5.6b of bonds, he said.

“Our projections are for us to grow to $8b by 2018, so we have to keep on making our bonds more accessible for investors – domestic institutional, domestic retail, banks and offshore investors.

“By listing, while we’ve already got some retail investors, it does increase the visibility of them. And hopefully it will add to liquidity, which is important because the more investors we get in, the more liquid the bonds are, then hopefully the tighter the spreads and the lower the borrowing cost.”

Mr Butcher said the bonds were already actively traded, with monthly market turnover typically of about $250-300 million.

“We’d expect some of the banks and some of the brokers to become more active in their pricing and quoting on the exchange. We’ll have to wait and see how it plays out.”

After listing, “it will be good to see the bonds trading every day – every maturity trading every day would be our target.”

Local Government Minister Paula Bennett said the listings were a significant milestone.

“Not only does it extend the investor base and provide councils with better borrowing rates but it also gives New Zealanders an AA+ rated investment opportunity.

“The government set up the LGFA following the global financial crisis to assist local government fund things like infrastructure projects that support regional economic growth.”

With $13.5b of bonds already listed on the NZDX, the LGFA bonds would boost the market by 41%, she said.

The LGFA functions as an aggregator of local authority debt by issuing bonds itself and using the proceeds to subscribe for debt issued by individual councils.

The agency is 20% owned by the government, with the other 80% owned by 30 local authorities.

It has so far provided finance to 47 councils.

ANZ Bank New Zealand was the organising participant on the listing and Russell McVeagh acted as legal adviser to LGFA.  

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