Contact joins list of money-raisers with lure of 8%

Capital investment programmes include geothermal development near Taupo. Photo / Alan Gibson

Contact Energy joined a growing list of corporates seeking to raise money on the retail market yesterday, officially launching its $300 million bond issue.

The energy company is offering investors 8 per cent paid quarterly on a tranche of five-year, unsecured unsubordinated bonds.

The offer opened yesterday, and closes on March 31.

The investment has been given the medium quality investment grade rating of BBB by rating agency Standard & Poor's.

Contact is initially seeking $300 million but has opened the offer to oversubscriptions. At least one commentator has said he expected the issue to raise up to $200 million worth of oversubscriptions.

The offer follows dairy co-operative Fonterra's massive $800 million six-year bond issue last month, which was 267 per cent oversubscribed.

Auckland International Airport's sale of $50 million of retail bonds was also fully subscribed.

Milford Asset Management executive director Brian Gaynor said companies were raising funds via five and six-year bond issues because it was almost impossible to get long-term debt from the banks at the moment.

Contact chief executive David Baldwin said the company intended to use the funds raised to support its capital investment programme and for general operation purposes, and possibly to repay debt.

The capital investments included geothermal development near Taupo, new gas-fired peaking capacity at Stratford, and the country's first underground natural gas storage facility near Stratford.

ABN Amro head of research Mark Lister said debt was very hard to come by at the moment so corporates were forced to come to this part of the market. "That means retail investors have the luxury of being able to be quite fussy and demand good issuers, good terms and good rates. So there's no need at all for people to get overly excited about rates that are anything less than attractive."

Gaynor criticised the various bond offers for seeking commitments from the institutions, which in turn marketed the investment to clients, before a registered prospectus and investment statement had been made available.

"It is putting pressure upon people to make up their minds before they actually see the offer documents," he said.

THE OFFER

* Five-year bonds at 8 per cent a year, paid quarterly.
* Standard & Poor's credit rating of BBB (medium quality investment grade).
* Contact seeking $300 million, but offer open to oversubscriptions.
* Minimum investment $5000.
* Offer closes March 31.