Investors from anywhere in the world are asked to buy a US$1,060
bond in the company and, in 20 years, they will be given back just
$1,200, a return of only 1%. The investors will be encouraged to
visit the firm’s site to be eligible for daily prize draws of up to
$50,000. The money raised from the site, estimated at $275 million
over the 20 year period, will be used to build the site’s
e-commerce capabilities, selling the investors everything from
tickets to health insurance.
From August 2002, 300 million shares in Global-e will be
available to the bondholders for 5 cents each. If the site
succeeds, the gains could be very good. However, this represents
less than 9% of the total shares in Global-e, the remaining 91%
being held by Global-e’s parent company. Of the 13 directors in the
parent company, 11 are Americans. Critics say that the shareholders
of the parent company will become very rich while the bondholders
take all the risks.
It is understood that they chose to base the project in New Zealand
because its laws allow for prizes to be treated as sales promotion
rather than gambling. Locating an e-commerce business overseas or
off-shore to take advantage of the legal regime is not uncommon –
see, for example, our Off-Shore Bank case study.
The intention is that about 40% of the money raised will be used
to pay the daily prizes, about $40 million a year. 30% will be
managed by a financial services group to repay the investments
after the 20 year term. The remainder will build the e-commerce
site.
It is understood that few bonds have been sold to date although
a multi-million dollar advertising campaign is soon to be launched.
There are 70 or so advisory firms offering the bonds. Advisers are
paid $25 commission for each bond sold.
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