Hot Topic NBR Focus: GMO
Hot Topic NBR Focus: GMO
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Global uncertainty hits NZ investors

Interest payments on the $75 million Fidelity Capital Guaranteed Bond may be suspended.

Duncan Bridgeman
Tue, 09 Aug 2011

Thousands of New Zealand investors are being warned interest payments on their listed bonds could be suspended due to the turmoil in global markets this week.

Auckland-based insurance and investment company Fidelity Life says its $75 million Fidelity Capital Guaranteed Bond will have to be “de-levered” over the next few days.

This means that there is a high probability that future coupons will be suspended, Fidelity said in a notice to the stock exchange this morning.Launched in 2007, the bond pays 9.25% interest in two annual installments.

It was forced to suspend payments in January 2008 because of fallout from the US credit crisis but resumed paying interest in June that year.

The bond is invested through Tyndall Investment Managers and mainly invests in options over US government bonds.

This morning Fidelity said that despite the best efforts of the fund manager, the value of the fund was not likely to improve materially.

“There is also a risk that the net asset value of the fund could fall below the bond floor requiring the close out of the fund,” Fidelity said.

“In the event of a close-out, all funds will be transferred to fixed portfolio assets and all active trading of options will be suspended. Any residual funds will be distributed in accordance with the trust deed.
Suspended interest on listed capital guaranteed bonds rank ahead of the principal and interest on the subordinated debt subscribed by Fidelity Life.”

Repayment of the principal is guaranteed at maturity by Westpac.

“Thus, in any eventuality, all bondholders will get their capital back on 15th July 2013.”

Fidelity said a further announcement would be made when it knows whether or not the Fund will be closed out.

“Meanwhile, investors should continue to exercise caution.”

Duncan Bridgeman
Tue, 09 Aug 2011
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Global uncertainty hits NZ investors