Article: Barry Bonds to rebuild state

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Barry Bonds to rebuild state

Barry Bonds to rebuild state
Exclusive | Heath Aston
August 28, 2011

SMALL investors will be asked to help rebuild NSW by entrusting their savings and superannuation to the O'Farrell government.

The so-called ''mum and dad'' investors - and the growing market of people who manage their own super funds - will be targeted by the government to finance infrastructure such as the proposed north-west rail line.

Nine days before delivering his first budget, the state Treasurer, Mike Baird, today will announce the immediate release of ''Waratah Bonds'' which he will promote as ''perfect protection'' from roller-coaster financial markets.

A throwback to nation-building bond schemes of the past, Waratah Bonds will be particularly aimed at people nearing retirement age whose wealth is more exposed to global jolts. The interest rate is likely to be set fractionally below bank term deposits of similar duration, reflecting the added security of government-backed debt.

Labor will deride the bonds as a political ''stunt'', arguing that the government could raise the same money more cheaply on wholesale markets. But Mr Baird told The Sun-Herald: "Waratah Bonds will provide mums and dads with the chance to not only have a long-term, safe and secure investment, but also help build the infrastructure NSW desperately needs. The security of the Waratah Bonds is the perfect investment for those looking for protection from the recent global turmoil.''

The Sun-Herald has obtained the first prospectus - available to the public from tomorrow - which details:

A minimum $10,000 investment, with $1000 increments thereafter;

Three- and 10-year maturities, interest paid twice a year;

Individuals, trusts, institutions and pension funds can apply for the bonds;

Investments above $1 million must be approved by TCorp, the government's borrowing agency.

Mr Baird expects to raise a minimum of $300 million through the bonds, with no upper limit imposed. Money raised will go into the $5 billion-plus ''Restart NSW'' fund along with cash raised from the lease of Sydney's desalination plant, windfall tax receipts and other borrowings.

The Waratah Bonds are similar to the federal government's ''Australian savings bonds'' of 30 years ago, but state governments rarely tap retail investors.

The Restart NSW fund will be placed in the hands of Nick Greiner, the former NSW premier, who is deciding the spending priorities of Infrastructure NSW, which he chairs. He will outline a 20-year plan by Christmas. Rail, road, water utilities, freight and hospitals will be financed but all must demonstrate a positive economic contribution.

AMP's chief economist, Shane Oliver, said the O'Farrell government must have spotted a ''gap in the market''.

''There's a lot of demand at the moment for 'quality debt','' he said. ''Households are moving into bank deposits.''

Brendan Lyon, the chief executive of Infrastructure Partnerships Australia, said: ''I think there will be a large appetite for Waratah Bonds. A lot of people who live in NSW will want to play a part in getting infrastructure built in NSW.''

Despite his enthusiasm, there is some speculation the bond issue reflects a reduced appetite from the private sector to invest in government projects after high-profile financial disasters such as the Cross City Tunnel and the Lane Cove Tunnel.

Mr Greiner must decide whether to fund proposed projects such as the M4 East, duplicating the M5 and the Pacific Highway, expanding Sydney's light rail network and improving rail freight. The projects will be classed as ''economic infrastructure'' which must be paid off by tolls, charges and tariffs.

Mr Baird has indicated his support for infrastructure to be funded through public-private partnerships, with the $7 billion north-west rail link expected to be a PPP.

The opposition is likely to dismiss the bond issue as a pre-budget stunt. The former premier Nathan Rees told Parliament that Restart NSW was no more than the ''establish-a-bank-account fund'', likening it to ''going over Niagara Falls in a barrel or Evel Knievel trying to cross the Grand Canyon''.

''If the government wishes to borrow money to put into this fund, it could raise that money through TCorp, probably at better rates on the markets,'' he said.

With the cost of credit on the rise, Mr Baird said Waratah Bonds would provide an invaluable stream of funding for government. ''For the state, it's important that we diversify our funding sources. This is critical to enable us to meet any future economic shocks and to build the infrastructure we desperately need.''

State and federal bond markets are now dominated by large institutions and international investors, mainly foreign central banks. As of June 2011, Queensland had $60.2 billion in bonds issued to large super funds and institutions.

Mr Baird said there would be no cost to taxpayers.

Administration costs would be passed on to investors.

Read more: http://www.smh.com.au/nsw/barry-bonds-to-rebuild-state-20110827-1jfhc.html