A high-yield bond with social benefits

Social Ventures Australia has a bond issue that could yield 15%.

Summary: Investors could earn up to 15% per annum through Newpin Social Benefit Bonds launched by Social Ventures Australia. Yield returns from the $7 million issue will vary according to whether Newpin can meet performance hurdles. The minimum investment is $50,000.

Key take-out: The NSW government will guarantee investors a minimum 5% yield on their investment for the first three years. If key performance rates are not achieved the bonds can be redeemed after three years, with only 75% of principal returned.

Key beneficiaries: General investors. Category: Fixed interest.

Social Ventures Australia is offering investors the opportunity to invest in Newpin Social Benefit Bonds (SBBs) that could yield up to 15% per annum, while helping to reunite children in care with their families. Like any high-yield investment, however, there is risk.

The introduction of SBBs was announced by NSW Treasurer, Mike Baird, in the state budget brought down in September 2011. Then, in late March this year, he announced the launch of the first such bond, the Newpin SSB.

On Thursday night, a public launch was held in the offices of AMP, overlooking Circular Quay. At the time of this event, Social Ventures Australia was already half-way towards raising the $7 million sought from the bond issue.

The success of the event and the attractiveness of the SSBs should ensure that the raising will be filled by the time the offer closes on July 1.

The Newpin program is managed by Uniting Care Burnside. The program aims to reunite children in care with their families and also prevent children from entering into care. There are currently four Newpin centres operating in western Sydney, and the funds raised from the bond issue will be used to fund the operations of these centres and the opening of six new centres across NSW.

Currently there are 18,000 children in care in NSW. Newpin has a solid track record of reuniting families through parent education and intensive family support. Last year, Newpin achieved a restoration rate of 74.5%.

The restoration rate achieved in the future is the key performance indicator that will determine the return that investors will get on their investment. Newpin’s restoration rate has been lower in the past and has been in the high 60% range over the last six months.

While the performance of the four existing Newpin centres is fairly stable, the performance of the six new centres to be opened remains to be seen.

The Newpin SSBs are intended to be a seven-year investment. The maturity date is September 30, 2020.

The NSW government will guarantee investors a minimum 5% yield on their investment for the first three years. After that, the return will be determined by the restoration rate key performance indicator.

If the restoration is 60% or better, the bonds will pay a 7.5% coupon. If the rate is 65% (the target rate) the coupon jumps to 12% ,and if it gets to 70% investors can earn 15% per annum. However, if these restoration rates are not achieved the bonds can be redeemed after three years, with only 75% of principal returned.

If the bonds are not redeemed at this time for poor performance, poor performance in years four to seven will see 50% of the principal lost.

As noted above, this is a high-yield investment with commensurate risk attached. However, if the investment does turn out to be a dud, there is the consolation that your money was lost for a good cause rather than being lost in the usual fashion.

Interested investors should go the Social Ventures Australian website at www.socialventures.com.au/.

Lastly, investment is restricted to wholesale investors as defined in section 761G of the Corporations Act. The minimum investment is $50,000.

Philip Bayley is a former director of Standard & Poor’s and now works as an independent consultant to debt capital market participants. He also writes on matters concerning debt capital markets and banking for various publications and is associated with Australia Ratings.

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