Battling aged care providers faced with the heavy burden of raising much-needed funds may now have another financial lifeline, following the introduction of the sector’s first social bonds scheme.
The Benevolent Society (Ben Soc) has just launched a new social bonds scheme to help to cover the majority of the residual finance needed for its Apartments for Life (AFL) project.
The scheme aims to raise around $10 million to fund most of the shortfall between what the bank will give Ben Soc for AFL and what is still needed for the $100 million aged care housing project.
Social initiatives executive for Ben Soc, Steve Hawkins, said that the scheme will not only appeal to philanthropists, prospective donors and investors, but it will also garner attention from other aged care providers in search of an alternative fundraising method.
“We put a great deal of thought into how to raise the money,” Mr Hawkins said.
“The concept that we came up with was to borrow the money but off our own balance sheet.
“…If we borrowed money off the market we would have to pay [it back at] eight per cent interest. But we wanted to do something a bit different. We wanted to get money from people who wanted to get on board with AFL and do something good.”
The bonds will be offered to interested members of the public at an annual interest rate of five percent, for a maximum of eight years from March.
The organisation holds the right to shorten the term of the investment for financial reasons. Should this be the case, Ben Soc will pay investors the full amount of interest due for the full eight-year term.
The bonds will also be linked to the cash flow performance of the AFL project, providing an extra incentive for investors.
“It’s not a risky investment. If you are someone who is looking to create social good and a return, then [social bonds] are better than a donation.
“Give us your money. You will get an okay interest rate and when you get your money back you can use it for something else.”
Of course the investment is not tax deductible but “you end up in the same place as if it was because you get all your money back plus interest. In that way, it’s symmetrical”.
Mr Hawkins said that although the five per cent rate of return is not as high as other investments, the amount of interest to be accrued is still a good offer when coupled with the philanthropic benefit.
“[The interest rate] is not a million miles away, as you get around six per cent with a bank. And it’s not like this is a tiny little charity. We have a balance sheet of $100 million and the probability of getting your money back is very very high.”
“People are taking a discount as to what they will get as an economic return. But, for a relatively small discount, they can be affiliated with the creation of AFL and get a philanthropic return.”
The organisation is currently talking to individuals and brokers about the sale of the social bonds. Based on the response, Ben Soc will build a “book of demand” in time for the date of issue.
“This is an innovative way of financing the social sector. If I was a philanthropist, it would be an interesting way of giving back as you can use the money again and again.
“The credit quality of Ben Soc should also give investors confidence that they will get their money back.
“We believe that AFL is an important initiative in the ageing sector. By investing in these bonds, you will have a great opportunity to be part of that.”
For more information visit the Ben Soc website by clicking here, or call Mr Hawkins on 02 9339 8034.