Fletcher debenture issue

Press, 31 May 1982, Page 12

Fletcher debenture issue

PA . Wellington Fletcher Challenge, Ltd, launches its second debenture stock issue this week; the chairman (Mr Ron Trotter) says the company intends remaining on the market permanently, with a continuing series of issues. The first debenture issue, launched earlier in the year, closes today. That issue, for $2O million, plus $l5 million in oversubscriptions has only just met its target — $2l million, as of Friday.

The second issue for which prospectuses will be available later in the week, is seeking another $2O million, with $lO million in oversubscriptions.

Mr Trotter said the first issue was “pretty disappointing,” but had been seriously affected by the Financial Services Regulations, intro.duced by the Government last November. It effectively limited Fletcher Challenge's ability to raise funds from many financial institutions. “The impact of the regulations has been mainly on industrial companies — al-

though I doubt whether that was the original intention.” The second issue, like the first, was not to assist in raising funds for large capital works, but rather for working capital, and general capital expansion.

The rates for the new issue are divided into two groups

— amounts to $lO,OOO, and amounts above that. The rates to $lO,OOO are two years 17.5 per cent (up 0.25 percentage point on the first issue), three and five years 17.5 per cent (unchanged), seven and 10 years, 18 per cent (up one percentage point). For amounts above $lO,OOO the rates for any term from two to 10 years are 18 per cent. The previous two-year rate was 17.75 per cent, the three and five year rates are unchanged, and the seven and 10 year terms are up 0.5 percentage point. Mr Trotter said he was conscious of the sensitivity surrounding interest rates. “I think we’ve got what is established as the market rate for industrial companies and

we’re not prepared to go beyond that. “We recognise the attitude of the Government and the desire of the monetary authorities to hold rates about where we are."

Offshore lending was. very much more expensive than the debenture rates. The prime United States rate was 15 per cent (with inflation at less than seven per cent) which, once converted into New Zealand currency, was an effective interest rate of more than 20 per cent. Fletcher Challenge had not been on the debenture market last year because it was altering its trust deed, after the merger of Fletcher Holdings, Challenge Corporation, and Tasman Pulp and Paper. Meetings were to be held around the country seeking

permission of holders of debenture stock of various FCL companies to transfer to Fletcher Challenge stock. Mr Trotter said this was to simplify administration. The company expected to be able to raise its fair share of borrowings on the local market, but realised that it had to go overseas for large amounts for specific projects. It raised $5O million in a hedged Swiss franc loan in March and last year had put in a placement of another $lOO million as a standby facility, which would be available if required. The adjustment in interest rates for longer terms was mostly technical to give a normal yield curve. Mr Trotter said very little was raised for seven and 10 year terms.