Thirty million dollars has been raised by the Queenstown Lakes District Council through its decision to issue wholesale bonds on the capital markets for the first time - saving the council an estimated $800,000 in interest payments.
QLDC deputy chief executive and finance general manager Stewart Burns said the concept of issuing bonds was first raised publicly during the 10-year plan process.
In August, Mr Burns was instructed by the council's finance committee to proceed with issuing the bonds on a wholesale basis, with the funds being used for basic infrastructure projects.
"We're not going to Mum and Dad; we're going to big, large institutions and investors and that's a much simpler way to go; it's much more efficient."
The first $10 million parcel to be drawn down was settled yesterday, with the second parcel to be drawn down in December and the final parcel in February.
Mr Burns said it was "very pleasing" to see the market reacted positively to the offer.
"There have been some occasions where local authorities have taken them to the market [and they haven't been received well].
"[Our] bonds were actually taken up."
The issuing of bonds by councils is relatively common, including by the Dunedin City Council and councils of Auckland, Manakau and Central Hawkes Bay.
Mr Burns said the QLDC had now "matured" to a point where bonds were a viable option.
The investors had shown confidence in the QLDC name, investing for periods of three, four or five years, he said.
Mr Burns would not divulge the rates of interest for each bond.
"The bonds have been issued at between 0.6% and 0.7% lower than the comparable fixed-term interest rate you would get from a bank - that's the saving."
The Auckland city council February issue of bonds, which raised $100 million, were yesterday trading at 5.9%.
Industry sources estimated the QLDC bonds would be offering interest between 6.4% to 6.9%.
Mr Burns said the council estimated that during the terms of the bonds it would have saved "in excess" of $800,000 in interest costs, when compared to existing rates for fixed-rate term loans from banks.
"From a cost of funds perspective, the decision to issue bonds rather than to rely on traditional bank loans has been fully justified.
"There was some up-front work . . . but once we've done that we can use it again and again.
"It's proved to be successful. We've got investors for all that we wanted," Mr Burns said.
The council bonds did not have an international rating as it was an expensive process, costing about $70,000, plus annual fees, he said.
Mr Burns said the $30 million was programmed expenditure for infrastructure projects.
When the bonds matured, "We'll have a variety of sources for borrowing, I'm not sure whether we'll be in a position of issuing further bonds - it will either be funded from a new bond issue or a traditional bank."
