Financial deal set to net nearly $400,000 profit

A nearly $400,000 profit will be netted by Waipā District Council in a low-risk arbitrage deal over the next eight months.

The council has borrowed $50 million from the Local Government Funding Agency and invested it in term deposits at the ANZ and BNZ banks at a higher interest rate than what it was borrowed for. It will return a profit of $384,000 when the deals mature next April.

Deputy Chief Executive and Group Manager Business Support Ken Morris said the transactions are provided for in the treasury policy.

“This is a situation of ‘pre-funding’ our debt requirement,” he said. “Council needs to be borrowing this money anyway – we are just doing the draw-down early, at an attractive interest rate, and making some profit from the early draw-down.”

Morris said that any risk was significantly mitigated by the interest rates being locked in on both sides of the transaction, the deposits being invested in credit-worthy financial institutions, and the ‘deal’ itself being confirmed as appropriate by council’s treasury advisor, Bancorp.