Gong says in bonds we trust

THE University of Wollongong has issued $42.5million of consumer price index-linked annuity bonds.

IN a move that credit agency Standard & Poor's argues may "signal a changing tide" in university financing, the University of Wollongong has issued $42.5million of consumer price index-linked annuity bonds, for which S&P has assigned an AA long-term rating.

It is the second Australian public university to do so: the Australian National University was rated AA+ by S&P for the purposes of its 2004 issue of $115million of CPI-linked annuity bonds to fund the first stage of its John Curtin School of Medical Research.

Although Wollongong had authorisation to raise twice the amount, it opted for a conservative approach, but it expects to get the rest of the allocation away in 12 to 18 months, according to the architect of the deal, deputy vice-principal (finance and IT) Damien Israel.

"We are in a position to issue more bonds if the right price is on the table, but we don't need those funds at this time," MrIsrael said.

The university received NSW government approval for the move in late 2007.

The debt, which matures in 2038, will be serviced out of general funds, and will assist with building Wollongong's innovation campus, which is expected to eventually generate income.

"It was a cheaper way to access loan funds for the university," Mr Israel said of the arrangement, which will return 3.75 per cent plus CPI annually to investors.

"The implied interest rate is lower than bank debt and you can lock it in for a much longer time-frame, 30 years in this case, and the only variable in that mix is the rate of CPI as it changes from quarter to quarter. The fact it is CPI-linked means it is a good fit for the university because a lot of our revenues are also linked to CPI or thereabouts."

S&P's credit analyst Danielle Westwater said the bond was "positive for the university's liquidity position" and the increase in debt was in line with Wollongong's capital expenditure program.

She said universities that apply for a rating with S&P did not necessarily do so for the purposes of issuing bonds. The agency has also rated the University of Melbourne (AA+) and La Trobe University (AA-). Neither university has plans to make bond issues.

"Sometimes they seek them for qualitative reasons, just to have an independent assessment of their credit rating," Ms Westwater said.

An ANU spokesman said the university had not raised any funds in such a manner since 2004, nor did it have any plans to do so.

But Ms Westwater said the decision by two universities to issue bonds could "signal a change in the tide for the options universities are using to fund capital projects".

"Australian public universities are in an increasingly competitive market," Ms Westwater said. "There is pressure to be less reliant on government funding. And there is inter-university competition for both international and domestic full fee-paying places. So in this type of environment, while there is still robust student demand, they are flexing that entrepreneurial muscle, they are looking for these opportunities to supplement revenue."