Click here for the full version of the Logic Report for Greenstone Energy Bond Offer

20 August, 2010

On 13 August, 2010 Greenstone Energy Finance Limited announced an issue of bonds to the NZ Market.  They hope to raise $200m through joint lead managers ANZ and First New Zealand Capital.  Below you will find the Key Terms and Logic’s independent investment opinion.

Logic Investment Opinion:

MEDIOCRE

• Complex secured debt security
• Lack of Investment Rating
• Unattractive underlying business
• Low yield

Investment Rating:

BB = sub-investment grade / junk

Tim Brown, an executive at Infratil admitted that the BB rating Greenstone expected to be ascribed by Stand & Poor’s played a part in the decision, but ultimately ratings were not needed for the New Zealand retail bond market.  Brown stated further that he prefers to leave the due diligence to investors.

Market History:

In April 2010, the New Zealand Superannuation Fund and Infratil acquired Shell’s New Zealand downstream oil and fuel operations and shareholding in The New Zealand Refining Company for NZ$696.5 million in April.

Fixed Income Market Commentary:

The elements of inflation are currently apparent in this unstable market.  As a recovery takes place over time, we believe inflation will rise, resulting in increasing interest rates and capital losses on a mark to market basis in the years to come for this particular instrument.

We note that an investor in Greenstone bonds is taking the same risk as the banks already invested; therefore an investor ought to feel reassured.  We however believe that instead of taking this risk and investing in unrated bonds, the more appropriate path would be to invest in higher yielding, more diverse, and secured bank paper.

Logic’s investment strategy for this time period remains to take advantage of high quality special situations such as Works Infrastructure Bonds in order to increase yield for portfolios.