Fletcher Building became the first in what brokers expect will be a long line of listed companies coming to the market to raise capital by paying rates with a generous margin for risk.
The company is making a public offer of $100 million of capital notes with the ability to accept $100 million of oversubscriptions. The interest rate for the five-year notes will be 9%.
ABN Amro Craigs broker Peter McIntyre said he rated Fletcher Building as a quality blue chip investment. The company was in the top five on the NZX with a strong balance sheet and good dividend payouts.
Fletcher Building chairman Roderick Deane had alluded to reducing the debt at the annual meeting but pointed to the government bank guarantee skewing the way money would be invested.
"Fletchers are paying 9% when other companies below their credit grade are paying lower rates because of the government guarantee. This is forcing the cost of capital up when top-rated companies come to the market place."
Fletcher Building was the first of the top five listed companies to come to the market, but others would follow as the banks became more risk averse, Mr McIntyre said. Bank funding would be mixed with higher-interest capital raising.
"It will be interesting where the prices come in. This will be something Fletchers has thought carefully about. Interest rates have fallen off the edge of the cliff in the last four weeks, particularly swap rates."
The Fletcher Building interest rate was 3% above the swap rate, he said.
Fletcher Building Finance said in a statement to the NZX that it was issuing the notes to raise money to fund the general business operations of the wider group, including the retirement of debt.
