Manukau City offers bonds issue as debt soars

Manukau City Council's bond issue, aimed at raising $350 million from conservative investors, underlines the massive hike in local authority debt. Investors should expect more issues to come.

The bonds which, after the Auckland super city is created, will be backed by the ratepaying ability of the 1.3 million people within the super council's boundaries, are to raise money for the general operations of the super city council, with a duration of seven years, and offering a minimum interest rate of 6.45%.

But David McEwen, editor of the New Zealand Investor magazine, warned investors to brace for more as local bodies look to take advantage of the huge demand for fixed interest investments in the wake of the collapse of the finance company industry. "One of the reasons is there's a bit of a shortage out there of fixed interest investments, and there's a tremendous demand for them," McEwen said.

"They offer a bit more money than you can get from government stock, and technically they have a higher risk, but if the government is going to bail out private companies, then it is not going to let a council go bust." It's not just sharp council financiers spotting a market opportunity to raise longer-term debt, however. There also appears to be a long-term trend of local authorities bulking up on debt.

Figures compiled by Statistics New Zealand show local authorities have indulged in something of a debt glut in the last nine years, mirroring the household borrowing spree. At June 30, 2000, the 86 local authorities (city, district, and regional councils) had $1.852 billion in current and term debts. That had swollen to $5.232b by the same date last year. Some councils have increased their debt loads by more than 500%.

- © Fairfax NZ News