Interest rates and risk
My Newsletter last month - Spring has sprung! - made a number of observations about Jacinda Ardern’s marvellous entry into politics, the lack of substance in the Government underneath, and the rather good state of the New Zealand economy. Well so far so good, nothing much has changed since then.
Baby I've been here before
I've
seen this room and I've walked this floor
To see the Katy Lang version of Leonard Cohen‘s brilliant song click here
My Newsletter last month - Spring has sprung! - made a number of
observations about Jacinda Ardern’s marvellous entry into politics, the lack of
substance in the Government underneath, and the rather good state of the New
Zealand economy. Well so far so good, nothing much has changed since then.
This week - like just about everyone else - I’ve been frantically trying to get
all business matters tidied up before the great New Zealand closedown from
Christmas on. See summary of our current Offers below.
But I still have time to read many of the “Newsletters” to which I subscribe.
Amongst these is the Chris Lee & Partners’ Market News. In the 2 December edition Mike Warrington discusses –
amongst other things – the risks for banks investors who shun bank deposits as
they seek higher returns. It’s an excellent article that covers a number of
subjects, one of which is a shortage of low cost bank finance.
He says “Indeed, there's a real risk that if deposit rates go lower,
household deposit growth could slow markedly as depositors seek higher returns
elsewhere. This would mean banks have a lower deposit base from which to
provide new loans, reducing the positive impact to the housing market and
broader economy.
“So
even if the price of credit (i.e. the interest rate) is low, supply constraints
(credit availability) can be a significant headwind.
“We
have been seeing this behaviour from investors throughout 2019, an increased
rejection of the returns being offered on bank term deposits with the funds
being reallocated into other asset classes.
“We've
heard the conversation about dissatisfaction each time interest rates fell down
through the next 'big figure', 7%, 6%, 5% and 4% but the investors usually held
the line with their allocations into fixed interest assets, but not any longer.
“The
journey below 3.00%, currently at 2.50%, which delivers an after tax real rate
of return below inflation, has been sufficient to spark a meaningful change to
asset allocation for most investors.”
This article is a great read – especially for those of us who were involved in
investment banking through the 80’s. Mike sums it up well by observing that “Businesses
without robust cash flows won’t enjoy meetings with their bankers. They’ll need
more supportive shareholders than in the past.”
Which gives me the opportunity to remind you of the services we provide.
Raising
loans
The positive side of low interest rates is of course the cost of borrowing. Not
much has changed since my last newsletter on this subject – bank
interest rates are low.
However as mentioned above, in my view, it’s going to be more difficult to
borrow from banks. So if your bank is not being helpful call me to provide you
the alternatives, as loan requirements are constantly changing.
Raising
capital
TBK Capital was formed in 2011 in recognition of the difficulty it is for SMEs
- and property owners and developers - to raise capital as well as debt.
Part of the difficulty of course is the incredible expense that’s required to
meet the legal requirements and the extraordinarily high presentation costs to
make a public offer to raise equity. However the FMA legislation does allow
Offers to be made to those who qualify as “wholesale” investors – see bottom of
newsletter.
So here’s a brief summary of those that are available for investment now. If
you’re interested in some specific type of investment, or just generally,
always feel free to email or call me.
Retirement
village
See original Offer here and update in our last newsletter. The original offer was seeking $4.5 million from
investors. To date they have $3.7 million taken up and paid or committed. So
there are now only 8 $100,000 shares left, and I’ve already had expressions of
interest for 2 of these.
Sufficient funds have been raised to complete the purchase of the land - which
has been done - and proceed with the requirements to commence construction. So
the Offer is expected to be fully subscribed before Christmas.
This is a large project and a big investment in the small local community.
The promoters have recently met with the mayor and chief executive of the
Hurunui district council who are naturally excited about a $160 million project
for the area. The council is currently setting up a special projects team to
fast track the resource consent process.
While there is still the opportunity to invest I would suggest that anyone who
has interest contacts me promptly by return email or phone. And the promoter
Tim Bartells is available to talk to you directly on 021 871 522, or email him
at timbartells@xtra.co.nz.
This is a rare opportunity to participate in the ownership of a large
retirement village project at the ground floor, and to receive a projected 64%
return on a longer term tax effective investment.
See more on our website. A copy of the IM is available on
request.
Established
funeral business
Well if movement to a retirement village is not achieved there are some things
that come about with absolute certainty.
We’ve got a client who owns an established funeral business in Gisborne. There
is a large Maori population in the Gisborne/East Coast area with whom they have
already established a relationship.
They wish to build a funeral home that will include public auditoriums, a
mortuary, catering facilities, cremator and so on. They will contribute
$600,000 towards this and are looking for equity to complete the building. Bank
finance has been arranged.
The profit resulting from the sale of the house will be shared equally between
the investors and the Promoter, plus the investors will receive (from the
promoter’s share) a refund of the equity capital raising fees. The construction
and sales budget shows a 31% pre-tax return to investors on money outlaid over
a 2 year time frame.
The promoters would also enter into an agreement to buy out investors in a few
years’ time.
See more on our website. A copy of the IM is available on
request.
The
Cliffs
Our client has an agreement to purchase a vacant elevated site atop of the
prized bay-side location known as ‘The Cliffs’ in Nelson. This is widely
considered one of New Zealand’s loveliest and handiest unspoiled regions, with
excellent year-round weather and lifestyle choices.
The promoter of this Offer is an experienced Property Investor and Developer
and intends to build a luxury home on the site for sale. His marketing policy
will include Bayleys Real Estate in Nelson to attract
prospective buyers.
The house contains one spacious master bedroom, with an ensuite and walk-in
wardrobe, plus a further two bedrooms sharing a second ensuite. In the center
there is an open plan kitchen with a walk in pantry and separate toilet and a
spacious dining and lounge area with a feature double sided fireplace.
A new company has been formed to undertake the purchase of the land and build
and sell the completed house. This will be owned 50% by interests associated
with the promoter as his fee for securing, arranging and managing the
construction of the house and its sale.
Our client is also providing a personal guarantee on the debt raised to assist
in the purchase of the section and the development of the house. The investors
will not be required to guarantee that loan. The other 50% will be owned by the
investors who participate in this Offer.
The budget shows a time frame of 2 years to build and sell the house and shows
a 31% pre-tax return to investors.
See more on our website. A copy of the IM is available on
request.
DryNZ
DryNZ is a privately owned and operated food
drying business located in Waiuku, south of Auckland. It sources produce
from New Zealand’s best heartland growers and produces a range of wholesale
dried fruit, vegetable and medicinal products. These come in the form of
pieces, powders and slices.
It’s the company behind the premium tea brand Ti Ora, and is now launching a range of
specially designed dried fruit granules tailored for the Chinese market. These
will be delivered door to door through popular online social networking site WeChat. The innovative service is intended to
be up and running for Chinese New Year 2020 which falls on 25 January this
year.
DryNZ has investigated and trialled a range of dryers to expand production. As
a result of this research it intends to purchase a Bucher dryer from Switzerland, given Bucher’s
reputation of state of the art technology and exceptional customer service.
This dryer will increase their drying capacity by 7 times the present
capability and will enable the business to be more profitable, grow its
customer base, and provide for self-funded growth.
To assist them fund this expansion, the business looking for $1.5 million
capital from equity investors in the form of ordinary shares for 21.6% of the
shares in DryNZ Limited.
See more on our website. A copy of the IM is available on
request.
Other
Offers
Here’s a business that’s designed a proprietary system to build the components
of modular homes in a factory for assembly on site. It’s a proven system in the
U.S., Europe and Asia. It’s now raising capital to support demonstration homes.
The original Information Memorandum is available on request.
Bestmate
Petcare
Established in conjunction with Massey University’s Veterinary and Nutrition
department, Bestmate Petcare is developing a range of pet
foods and beverages. The first innovative beverage, Bestmate K9H2O, provides hydration and overall
wellbeing for dogs and contains natural ingredients including vitamins. Recent
opportunities have arisen in the U.S where the product has FDA approval and
intellectual property protection. This is the beginning of the international
market for its products and is now raising capital to assist launching there.
Contact me for more information.
FirstBuild
Here’s a business that’s designed a proprietary system to build the components
of modular homes in a factory for assembly on site. It’s a proven system in the
U.S., Europe and Asia. Their plan is to partner with noteworthy developers to
produce houses in volume in a shorter time. It’s now raising capital to
support demonstration homes and is showing modules in Whangarei this week. This
is private viewing at closed sites under NDA conditions. Contact me for more
information.
Manuka
Oil Plantation
Our client has a lease of 800 Ha of Crown land in Northland with fully grown
Manuka and Kanuka. He has the sole right to harvest and produce Manuka and
Kanuka Oils. A relatively small amount of capital is needed to update existing
equipment and streamline the harvesting. This would be a precursor to expand
the business to provide the Oils to distributors awaiting supply to sell it
internationally. Contact me for more information.
.............................................................................................................................................................................................................
Any
reference above to investment is not an offer of financial products that
requires disclosure under the Financial Markets Conduct Act 2013 (Act) and is
available only to wholesale investors as defined by that Act. It
is intended for distribution only to selected people to whom, under the
relevant laws, it can be lawfully distributed. It cannot be distributed in any
other jurisdiction, or to any other people. It is not an offer or solicitations
in any jurisdiction in which such offers or solicitations are not authorised,
or in which the person making such offers or solicitations are not qualified to
do so, or to any person to whom it is unlawful to make such offers or
solicitations. Any representation to the contrary would be unlawful. No action
has been taken by any person that would permit a public offering in any
jurisdiction where action for that purpose would be required.
Cheers
John Paine B.Sc., Dip BIA
TBK Capital Limited
Level 10, 120 Albert Street
Auckland 1010, New Zealand
Phone +64 9 307 3257
Mobile +64 21 902 901
Email john.paine@tbkcapital.co.nz