Ticking both boxes in today’s environment of decade high inflation and increasing interest rates is challenging. Over the long-term, investors want to maintain the purchasing power of their savings and need positive real returns to achieve this. The challenge is that with inflation hitting more than 7% in the last year, the investment return currently needs to be high to fully compensate for this.
This is in an environment where most asset prices and business valuations are being tested. For many equity investments, it was a one-way bet higher since the 2007-2008 global financial crisis, with an extra kick of exuberance through Covid until around this time last year.
The rapid interest rate increases over the last year stopped the party and signalled the longer-term ‘risk-free’ rate for investing has increased. This in turn has started to impact valuations as record low capitalisation rates (i.e., for property), or in the ‘tech’ space record high valuation multiples needed to unwind to compensate for the higher investment risks.
This new investment environment requires much closer attention to the appropriate pricing of risk/reward, especially when investing equity and looking for future capital gains. To protect against falls in asset prices or business valuations, solid growth prospects and pricing power are required to maintain margins.
The other alternative to equity is fixed income returns from bond and debt finance investments. The running yield or interest payments received on these types of investments reflects the higher inflationary environment after a painful adjustment from record lows over the last year. The more challenging aspect in today’s environment is assessing the risk that a business will be able to meet its financial obligations and return capital when a loan term ends. The areas that are most attractive are those where lending is well secured against a real asset base and in ‘essential’ business services with the ability to maintain margins.
The EastPack Notes offer is well suited to the current investment environment. The interest rate return is set annually, offering a minimum return of 8.5% p.a or the New Zealand Government 5 year bond rate plus a margin of 4.5%, whichever is higher. The annual reset helps to reflect the prevailing market for interest rates and inflation over each period. For the first year, the interest rate return is set at 8.9% p.a., which is well above current inflation levels.
It’s also another diversification in the kiwifruit sector and supports the further development of core industry infrastructure. The Notes are unsecured and subordinated. EastPack is an industrial business with six packing facilities and combined with other assets like plant and equipment, as at December 2021 EastPack had assets of $350.4 million. The offer is looking to raise $30m, to diversify EastPack's funding sources to build further capacity to process the future growth in supply.
The business is an essential part of the kiwifruit supply chain, providing vital services to their growers with their fruit needing to be picked, graded and packed before being shipped offshore.
To find out more and request the Product Disclosure Statement (PDS) and watch the video below.
EastPack Notes: offering a minimum return of 8.5% p.a over a 5 year term*
- Open to all investors in New Zealand
- First year interest rate of 8.9% p.a.
- Annual reset at minimum 8.5% p.a. interest rate, or 5-year government bond + 4.5%.
- 5 year investment term*
- Interest paid quarterly
- Minimum investment $20,000
- Unsecured, subordinated, fixed rate debt securities
- EastPack Limited is the issuer of EastPack Notes.
Or learn more about EastPack Notes here
*EastPack has the option to redeem after 3 years
This post does not constitute, and is not a substitute for, financial, legal, tax, accounting or other professional advice. It does not take into account the particular needs or circumstances of any prospective investor. Before deciding whether to invest, you should obtain independent financial advice that takes account of your personal financial goals and circumstances. MyFarm Investments and/or EastPack cannot provide you with any such independent financial advice. Any investment decision made by any person is based solely on their own evaluation of their individual personal and financial situation.