Sponsored by Turners Automotive Group Limited (Turners)
Most investors know what shares are, but fewer people understand corporate bonds, which are another form of investment.
With shares, you’re buying a piece of a company listed on a stock exchange.
However, with bonds, you’re lending money to a company to help it grow.
The offer is fixed
When you buy bonds the company, called the ‘issuer’, will offer you a fixed or floating rate of interest for a fixed period of time. You receive this interest until the bond matures (if the bond has a maturity date). Then you’ll get back what you paid for the bond (subject to any subordination or default).
For this reason, amongst others, bonds are often considered to be safer than shares, which can be dramatically affected by market ups and downs. This can happen to bonds, but not usually as rapidly.
You’ll generally find interest rates on corporate bonds are better than the rates you’ll get with local body or government bonds.
That’s because you’re likely to be taking on more risk, because private businesses are generally riskier than public organisations.
Here’s how it works. Take the recent bond offered by Turners.
Turners is an integrated automotive financial services group that primarily offers finance and insurance products to the automotive industry through a network of dealerships including those that they own.
With Turners bonds, you buy secured subordinated fixed-rate bonds paying 5.5 per cent a year interest, for three years (subject to subordination). Turners promises to pay you interest quarterly and repay the money at the end of the three-year term (subject to subordination).
The bonds are secured over some of Turners’ assets, and rank for repayment on liquidation after certain bank debt and security as described in the product disclosure statement (PDS) for the bonds.
When the bonds mature, on 30 September 2021, you should get back what you paid for your bonds subject to further conditions as set out in the PDS. In the meantime, Turners uses your money to repay existing financing, including the existing bonds which are maturing 30 September 2018, providing additional debt capacity to fund future business opportunities.
Turners intends to quote the bonds on the registered market for trading debt securities operated by NZX Limited. Meaning, you can sell your bonds earlier than the maturity date if someone wants to buy them.
Limited offer time
Bond offerings are usually open for a limited period of time. The Turners offer is now open, and closes at noon on 24 September 2018 (subject to Turner’s discretion to close early).
The minimum amount you can buy is NZ$2,000, but after that you can buy the bonds in multiples of NZ$1,000.
As an investor, you should always read the product disclosure statement for a bond offer before investing. It contains details about the business, what the loan is for, and what the risks are. The PDS for the Turners bonds is available here and on the Disclose Register.
People applying for the bonds need to complete an application form in, or accompanying, the PDS. Here’s the application form for the Turners bonds.
This content is brought to you by Turners. This information is general in nature only and has not taken into account any particular person’s objectives or circumstances. Before relying on it, we recommend you speak with a financial adviser. The bonds have not yet been approved for trading and NZX Limited accepts no responsibility for any statement in this article.
JUNO does not contain financial advice as defined by the Financial Advisers Act 2008. Consult a suitably qualified financial adviser before making investment decisions. This story reflects the views of the contributor only. Content comes from sources that JUNO considers accurate, but we do not guarantee that the content is accurate.