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Perpetual Infrastructure Bond (PiiB) Interest Rate Determination

14 Jan 2008

14 January 2008 

As announced on 3 December 2007, Infratil and the Trustee of its PiiBs, Trustees Executors Limited, identified an ambiguity in the determination of the PiiBs’ coupon rate.

Investors in the quarterly coupon paying PiiBs would expect to receive "one year swap rate plus 1.5% per annum", but uncertainty exists as to whether Infratil should determine that rate as accurately as possible or use a proxy provided on the Reuters' page FISSWAP.

The most accurate rate would recognise that the PiiBs pay a quarterly coupon, yet the Reuters' page on 15 November 2007 displayed only a semi annual one year swap rate. The coupon determined by the "accurate rate" would be 10.18% per annum while it would be 10.27%per annum if based off the "Reuters' rate".

Legal advice now received by the Trustee indicates that investors in the PiiBs are entitled to receive no less and no more than the one year swap rate plus 1.5% per annum for a one year bond with quarterly coupons and that the most accurate rate should be used to determine the yield.

Practically this means that the coupon rate for the period from 15 November 2007 to 15 November 2008 should be 10.18% per annum. Coupon rates for subsequent years should also be determined to accurately reflect the coupon structure of the PiiBs. The relevant Reuters' page now shows both a semi annual and a quarterly rate and if this continues to pertain, then it will be appropriate for Infratil to use that quarterly rate to determine the PiiB coupons for subsequent periods.

As announced in December 2007, Infratil increased the coupon rate on the PiiBs for the period 15 November 2007 to 15 February 2008 to 10.27% per annum to ensure that there was no uncertainty as to the accruals rate on the PiiBs while this uncertainty was being resolved. The Infratil board has now determined that the coupon rate for the entire period to 15 November 2008 should be set at the higher rate. This was not recommended in the legal advice provided to the Trustee, but has been decided by Infratil, in consultation with the Trustee. It recognises that there was uncertainty in the determination of the rate and that Infratil wishes to operate in accordance with both the word and the spirit of its obligations.

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