NEW ZEALAND: University attracts investors with bonds

In a nation with a weak tradition of philanthropy to universities, the University of Canterbury has launched an innovative scheme to raise funds - a bond issue that gives investors the opportunity to donate to the university.

The university recently announced the $50 million (US$37 million) issue which it will extend to $100 million if there is sufficient demand. The initial response has been enthusiastic and within the offer's first 10 days, the 10-year bonds which pay an interest rate of 7.25%, had attracted $15 million, with investment brokers indicating they expected their clients to take up a further $30 million.

Vice-chancellor Dr Rod Carr said the money would be used to fast-track some of the university's building projects so that more students could benefit from better facilities.

The philanthropic aspect of the bond issue comes from giving investors the option of waiving some of the interest on their investment and-or donating some of the principal to the university.

Carr said the bond scheme was designed to give potential donors more options than the usual sole option of simply giving universities money: "Essentially it is shaped for the New Zealand context and New Zealand doesn't have a strong philanthropic, outright-giving culture," he said, adding that the bond scheme was expected to encourage "gentle giving".

One benefit of the scheme was that it would create a new group of stakeholders, Carr said. The expected 5,000 bond holders would have an interest in the university and would be kept up-to-date about its activities.

It was hoped some of this group would eventually support the university further and Carr said people's biggest gift to an organisation tended to be their 16th, indicating a long association was required. He said that currently Canterbury received about $4-5 million a year in donations.

The bond offer is initially for $50 million, paying an interest rate of 7.25% for five years with the rate then reset for a further five years. The bonds, to be repaid in 2019, opened on 9 October and will close on 30 November.

Past efforts to encourage more private support for New Zealand universities included a scheme that saw the government match private donations dollar for dollar on specific projects. Most of the country's eight universities participated, with the biggest allocations for individual projects totalling about $25 million.

The University of Auckland is the country's biggest university and it is also chasing a $100 million target. However, its target is for outright donations and it has so far raised $56 million.

* John Gerritsen is editor of NZ Education Review.