Infratil buying back infrastructure bonds

Listed investment firm Infratil has begun a new buyback of its Perpetual Infrastructure Bonds, which have performed poorly for investors in the low interest rate environment.

Tuesday, February 5th 2013, 10:25AM 3 Comments

by Niko Kloeten

Last week Infratil announced its intention to make selective on-market purchases of the bonds over the next six months, up to a maximum of 3.7 million bonds.

There are about $235 million of the bonds outstanding (face value).

Yesterday the firm bought 19,000 bonds at a price of 58c in the dollar ($11,020) and today it bought a further 80,000 at the same price ($46,400). The bonds have been trading between 53c and 59c in the past 12 months.

The purchases were considered by the directors to be in the best interests of the company and shareholders, Infratil said.

Over the last four years, Infratil has repurchased about $4 million face-value of the bonds for about $2.3 million. The company said the aim of these purchases was to ensure the market was liquid.

The coupon for the bonds is set each November at 1.5% over the one-year bank base rate.

When they were launched in 2006 the coupon rate was 9%, rising to 10.27% the following year, but it fell to 6.95% in 2008 as the Reserve Bank began cutting the official cash rate.

The coupon has continued to drop since then, reaching a new low of 3.97% at its latest reset last year.

At a price of 58c per $1.00 face value and a coupon of 3.97% they are yielding about 6.85% in the secondary market.

Infratil has so far ruled out buying back the bonds at a higher price on the basis that it would be a transfer of wealth from shareholders to bondholders.

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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Comments from our readers

On 19 September 2013 at 12:43 pm B J Wolters said:

I bought these bonds in 2006 and was not fully aware of its implications, in that the interest rate would reduce that much.Since you had the use of this money for 7 years at a low cost, could you not refund the full amount (For us as pensioners it is a lot of money). Look forward to your favourable reply. Yours Ben J. and Jenny Wolters

On 1 May 2014 at 4:42 pm paradise Trust said:

In 2005/6 I was advised by financial advisors (Money Managers)that these bonds were a sound returning bond. I entered into the market after that advise only to learn at a later date that money managers were a sham and not at all qualified to advise me or any one else. I see myself a victum of bad dealings between Infratil and money managers. I wish Infratil to but back my bonds for the $ value that I entered in at, I am 73 years of age and need my money.

On 6 May 2014 at 10:01 am Bill said:

Infratil borrows the money and then takes advantage of the situation to repay 58 cents in the dollar

Sounds like a transfer of wealth from the bond holder to the shareholder

Not the actions of a good corporate citizen

Rabobank and ABB could take note of this too

If you value goodwill from your customers and investors, and are good corporate citizens, repay ROBHA's and ASBPA's and PB's in full now

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Investments

Infratil buying back infrastructure bonds

Listed investment firm Infratil has begun a new buyback of its Perpetual Infrastructure Bonds, which have performed poorly for investors in the low interest rate environment.

Tuesday, February 5th 2013, 10:25AM 3 Comments

Comments from our readers