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Macquarie launches high income Australian Dollar investment |
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18 November 2004 Macquarie Equities Limited today launched the New Zealand investment statement for Generator Income Notes, an Australian dollar investment. This is the second in a series of high-income corporate debt products issued in Australia by Generator Investments Australia Limited, and the first product it has offered in New Zealand1. Generator Income Notes add to the recent CDO (Collateralised Debt Obligation) products issued in New Zealand and Australia, however it is the first listed investment in its category to involve a manager of the underlying portfolio. Head of Macquarie New Zealand's Financial Services Group, John Rowley, said Generator Income Notes were developed with two major differences from other similar CDO investments available in New Zealand or Australia. Firstly, Generator Income Notes are expected to receive a AAA rating (from Standard & Poor's) on the return of capital at maturity. This is the first time such a rating has been provided to an Australian-issued income investment. Secondly, AXA Investment Managers, Paris S.A. (AXA IM) has been mandated to manage the underlying portfolios, meaning that should there be concerns about any of the companies in the portfolio, AXA IM has the ability to remove that company. AXA IM is a leader in credit management with more than €60 billion Euros under management and manages €292 billion Euros in assets worldwide. Mr Rowley said Generator Income Notes are expected to appeal to New Zealand investors who have capital preservation as their primary objective, are seeking Australian dollar income, and who find traditional low risk investments, such as term deposits, are simply not paying enough interest. Mr Rowley said Generator Income Notes' floating rate may also appeal in the current low interest rate environment. “For investors seeking the highest possible credit rating2 on the return of their capital at maturity, but who are also seeking the opportunity to earn Australian dollar income which is higher than the term deposit rate, Generator Income Notes may provide a new alternative” he said. Product details:What is a Collateralised Debt Obligation (CDO)?A CDO is a structured finance arrangement built on a portfolio of credit default swaps , which are a common derivative structure for transferring the credit risk of an asset from one party to another, in return for payments. The use of CDOs around the world has increased dramatically since 1996 and, as a result, Macquarie has been able to source a product partner and develop a product to meet our specific risk/return requirements. A CDO is a flexible structure which can be specifically designed to:
Expected AAA rated backing for the return of your principal at maturity by Standard and Poor's:Generator Income Notes are expected to be rated by Standard & Poor's as AAA on return of capital3. Target income of 7.4 per cent per annum initially4 (2 per cent over the Australian 90 day bank bill swap rate):Generator's target income is initially 7.4 per cent per annum (the Australian 90 day bank bill swap rate was 5.4 per cent per annum as at 26 October 2004). This is a floating rate security, meaning that if interest rates in Australia rise, Generator's income will rise. Generator offers this higher than “risk-free” rate of return by investing in the corporate debt of approximately 140 companies. If there are losses in the Generator portfolio, the level of income may fall. An experienced and committed manager looking after the underlying investments:For this reason, Generator has mandated AXA IM (Paris) to protect the underlying portfolio from losses. Based on AXA IM's skill and experience, Generator believes that it can reduce this risk. AXA IM's experience includes four structured credit investments that are similar to Generator Income Notes. All four of these investments are currently exceeding their target returns, and have achieved this over a period that included one of the worst credit markets on record. However, AXA IM's future performance is not guaranteed. The risk of receiving lower income at some stage during the term of Generator Income Notes remains one that investors bear and must consider carefully. This is the trade-off with Generator Income Notes – the potential for higher income comes with the risk that AXA IM cannot repeat their past performance. Potential for an additional amount at maturity:Depending upon the performance of AXA IM, the credit market conditions and pricing of the underlying investment, Generator Income Notes may pay an additional amount at maturity (8 October 2011). The potential size of this additional amount will be announced following the issue of Generator Income Notes. Listed on the ASX:As Generator Income Notes will be listed on the Australian Stock Exchange (ASX), investors may have the opportunity to liquidate their investment prior to maturity . This can provide more flexibility than other income producing investments such as term deposits. Diversification:Most Australian income producing investments rely upon the strength of the Australian economy in some way. For example, mortgage funds depend upon the property market and the ability of borrowers to meet payments and listed property trusts depend upon demand for rental space. Generator Income Notes draw their income by investing in securities linked to approximately 140 corporate debt securities from around the world. In other words, they provide investors with a source of Australian dollar income, but with diversification away from the risk of the Australian economy slowing. These corporations are predominantly investment grade (BBB- or better), all based in OECD countries and from a wide variety of industries. It is by analysing and selecting these corporations' debt securities that AXA IM will manage the risks of Generator Income Notes' income falling. Generator Income Notes will be offered by initial public offering until 9 December 2004. Total issue size is A$100m with the ability to accept over-subscriptions of up to an additional A$100m. Macquarie Equities Limited in Australia will be the Lead Manager of the issue. In New Zealand the offer will be available through Macquarie Equities New Zealand Limited by phoning 0800 SHARES (0800 742 737) or by visiting www.macquarie.co.nz Generator Income Notes is offered in New Zealand pursuant to the Securities Act (Australian Issuers) Exemption Notice, 2002. The investment statement is accompanied by the Australian Prospectus dated 2 November 2004, which was lodged, on 2 November 2004 at the Australian Securities and Investments Commission. Investments in Generator Income Notes are not deposits with, or other liabilities of Macquarie Bank Limited ABN 46 008 583 542 (“Macquarie Bank”) or any other member company of the Macquarie Bank Group, and are subject to investment risk, including possible delays in repayment and loss of income and principal invested. None of Macquarie Bank, Generator Investments Australia Limited ABN 37 103 116 954, Macquarie Equities Limited ABN 41 002 574 923 or any other member company of the Macquarie Bank Group guarantees any particular rate of return or the performance of Generator Income Notes, nor do they guarantee the repayment of capital from Generator Income Notes. Generator Income Notes is an offer by Generator Investments Australia Limited, as trustee of the Generator Income Trust. Generator Income Notes are classified as unsecured notes for the purposes of section 283BH of the Corporations Act. In New Zealand applications can only be made on the application form contained in the investment statement prepared as at 16 November 2004. For further information: John Rowley Hamish Anderson
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