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VMIL floats $5.8b bond

The extended bond offer from Victoria Mutual Investments Limited, VMIL, that aims to raise $5.8 billion, will pay investors double-digit interest rates to hold the debt.

The proceeds of the bond arranged by its subsidiary Victoria Mutual Wealth Management will refinance maturing debt and investment activities.

The offer has been on the market since November, but was set to close on Tuesday, February 28, two months after its original December 29 deadline.

VMIL CEO Rezworth Burchenson did not immediately respond to queries and emails sent regarding the bond, which is being issued in three tranches that all mature in 2024.

They include a $800-million instrument that is priced at a variable rate of 3.0 per cent plus the average Treasury bill rate, and thereafter at a fixed rate of 11.25 per cent. The second and third tranches, each valued at $2.5 billion, will pay interest of 11.25 per cent and 10.75 per cent, respectively.

In its previous debt issue in March 2022, VMIL sought to raise $3 billion at 6.5 per cent and 6.7 per cent, and prior to that, in 2021 it raised $2.5 billion at 5.5 per cent interest.

It’s become more costly to borrow due to sustained interest rate hikes by the central bank, which pushed the policy rate from its historic 0.5 per cent low to 7.0 per cent.

The risk-free or Treasury bill rate, which operates as a floor for the pricing of debt, has also shot up within the new interest rate environment and is now at 8.09 per cent for the three-month bill and 8.44 per cent for the six-month instrument.

“We saw interest rates reaching an 11-year peak, as the central bank sought to put a lid on domestic inflation,” VMIL noted in its third-quarter earnings report.

The spike in interest rates has also made it more costly for investment companies to do business, as clients demand higher returns. That plus volatility in the financial markets have eroded capital and assets, and dampened profit performance.

In VMIL’s case, the company’s assets dipped from $30.4 billion to $27.6 billion as at September 2022, while its nine-month earnings shrank by nearly half, from $623 million to $335 million, which the company attributed to market turbulence.

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