Ayala Land Homestarter Bond with ALI bonus credit
August 31, 2012
Ayala Land Inc. (ALI) is offering a new type of bond that will give investors fixed income, plus a bonus credit if and when the investor decides to purchase an Ayala Land residential property.
The Ayala Land Homestarter Bond pays a 5% fixed interest rate per year — decent return from a relatively stable company — but make sure you understand all the terms and conditions of the investment, lest you eventually be convinced to buy a property that you never planned.
The Homestarter Bond, at first glance, appears to be a simple capital fundraiser for Ayala Land. The company plans to raise up to P3 billion by issuing bonds to the public priced at face value that mature in 3 years. Proceeds of the offering, according to ALI, will be used for general corporate purposes.
When analyzed closely, the bond offering ultimately acts as a clever marketing strategy for ALI to promote its real estate properties to consumers. Instead of merely giving potential buyers outright price discounts like what other real estate developers do, ALI offers a “bonus credit” attached to the income opportunity in the hopes of convincing investors to become potential buyers of ALI’s real estate properties.
The bond investment is good and provides a sure two-pronged benefit if you really plan on buying an ALI property, but may be detrimental and costly if acquiring the property was unplanned and you were just convinced to get one “since the bonus credit was already there, anyway.”
Unlike regular bond investments, the Ayala Homestarter Bond does not require upfront or one-time payment. Instead it allows investors to make equal monthly contributions in denominations of P5,000. Monthly contributions will be deducted directly from designated accounts in the Bank of the Philippine Islands (BPI) or the BPI Family Savings Bank (BPI-FSB). All in all, investors will be placing a minimum of P180,000 during the 3-year period.
The total investment will earn 5% per annum and the capital and interest will be paid in full only upon maturity. The interest earned is subject to a 20% withholding tax.
At any time prior to maturity, the investor may choose to purchase any ALI property and apply the bond as partial or full payment. Any Ayala-developed property under any of their brands, including Ayala Land Premier, Alveo, Avida, and Amaia, may be availed.
If the purchase is made before the end of the first year, bondholders earn a bonus credit of 10% of the total investment paid up to the date when the bonds are applied as payment.
If the purchase is made after the first year, bondholders are entitled to a bonus credit of 10% of the total investment in the entire 3 years or 36 months.
Payment on maturity
There is a cap, however, on the total bonus credit that may be earned. It cannot go beyond 5% of the total net selling price of the property being acquired.
Also if the bond investor decides not to purchase a property, the total principal plus interest will be paid in full and deposited to the designated BPI or BPI-FSB account upon maturity.
Deposit account or bond investment?
The Ayala Homestarter Bond appears to be structured more closely to a specialized deposit account (savings or time deposit) rather than to a fixed-income security. Similar to a savings account, the “investment” is made per month and not paid upfront like in bonds. Although the company statement is silent on pre-termination, the bonds do not seem to be tradeable and cannot be sold back to the issuer or to another investor prior to maturity unlike regular fixed-income instruments.
Interest is also earned only at the end of the maturity period, different from bonds that pay semi-annual or annual coupons, or savings accounts that pay quarterly or even monthly interest.
Regardless of its actual form, however, the Ayala Homestarter Bonds look like a good investment option for those who want a stable and secure midterm placement and especially for those interested in acquiring a property in the next three years.
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