Beginners

[Snow Leopard]

Base Rate: Read this >> https://www.interest.co.nz/charts/in...tes/swap-rates << and look at the 7 year chart as to a good indication of what the current rate is.

Indicative Issue Margin: The extra amount above the base rate Infratil reckoned they would have to pay to get enough buyers.
Note that "The actual Issue Margin may be above, within or below the indicative range" means we will pay as little as we must.

Minimum Interest Rate: The least rate that we will offer [ so you can see that we are not dreaming and it is worth having a look ].

[Snoopy]

Hi guys, thanks for all the info above, much appreciated, for my learning I was looking at the infratil bond offer.

Can someone please explain how these numbers work? and how these all interact to get a final interest rate for the bond?

Minimum Interest Rate: 7.05% per annum.

Issue Margin: The Issue Margin will be determined by Infratil in consultation with the Joint Lead Managers (identified on page 10) on the Rate Set Date following completion of the book build process for the Firm Offer and will be announced via NZX and available on Infratil's website www.infratil.com/for-investors/our-bonds shortly thereafter.

Indicative Issue Margin: The indicative Issue Margin range is 2.40% to 2.55% per annum. The actual Issue Margin may be above, within or below the indicative range.

Base Rate: The mid-market rate for a New Zealand dollar interest rate swap of a term matching the period from the Issue Date to the Maturity Date as determined by Infratil in consultation with the Arranger (identified below) on the Rate Set Date in accordance with market convention with reference to Bloomberg page ICNZ4 (or any successor page), in each case expressed on a quarterly basis (and rounded to 2 decimal places, if necessary, with 0.005 being rounded up).

The Infratil bonds you are talking about are going to be listed under the ticker IFT340 and will mature on 31st March 2031 (in 7.5 years time). Company bond rates are normally set relative to a 'reference rate' or 'base rate'. Government bonds are considered the lowest risk investment over any time period. So this 'reference rate' is normally the 'government bond rate' for an equivalent lending period.

To take into account the higher risk associated with a pending new corporate bond, the issuer of the bond puts out an indicative 'issue margin' which reflects where they expect the coupon rate of the bond to be set:

'base rate' + 'issue margin' = ''bond coupon rate'

A graph of the mid-market rate for a New Zealand dollar interest rate swap contract for 7 years (the nearest comparative government bond for the proposed IFT340) was 4.73% as of 1st September 2023 (the closing day for IFT340 bond applications).
https://www.interest.co.nz/charts/in...tes/swap-rates

This equates to an 'indicative' bond coupon rate of:

4.73% + (2.40%+2.55%) = 7.13% to 7.28%

These 'indicative' interest rates are are however, nothing more than suggestions which interested potential bondholders should bear in mind during the bond tender process. As Grimy has already posted, the actual bond rate was set at 7.08%. This is below the expected range but above the 7.05% minimum floor price set prior to the auction. And it probably suggests that there were some financial institutions out there willing to pay 'over the odds' to get hold of some good quality NZ corporate bonds while interest rates are high. HTH.

SNOOPY

[Azz]

..........

[Grimy]

The Minimum Interest Rate has been set at 7.08% per annum. This is equal to the sum of the Issue Margin of 2.40% per annum and the Base Rate on the Rate Set Date of 4.68% per annum.

[NZSilver]

Thanks for all the above info.

I see Precinct property is offering a bond. My initial thoughts without much research is I would be a little reluctant with this bond as there could be more pain with office property making it a little more risky (vs the likes of infratil).

[Grimy]

https://www.chrislee.co.nz/taking-stock
Today's Taking Stock has a little bit on the precinct offer.

[Grimy]

The interest rate has been set at 7.56% for the 3-year term, and 7.53% for the 4-year term.

[NZSilver]

Thanks that Chris lee stock take was interesting. I didn't end up buying and bonds but pretty tidy interest rate.

[NZSilver]

Synlait milk is trading at 18%, so you will get an 18%yield to maturity? But risk Capita loss?