Bond investors face delay in interest payout

Investors in NZDX-listed bonds issued by a subsidiary of Fidelity Life Assurance will have to wait until at least January before getting another interest payment.

Fidelity Guaranteed Capital Bonds Ltd has struggled to pay its investors their interest since the bonds were launched in April 2007, just before the global financial crisis hit.

The bonds pay interest of 9.25 per cent a year and mature on July 15, 2013.

The January 2008 interest payment was suspended to preserve capital after the fallout from the collapse of the United States subprime market, which caused unprecedented volatility in the international government bonds market.

That payment, plus interest, was paid together with the July 2008 interest payment.

But by the end of last year, the value of the fund had fallen below the minimum required to make the January 2009 interest payment and now the July instalments. At June 30, the fund had a value of $73.5 million, against the minimum $79m needed to meet this month's interest payment.

The value of the fund would need to recover to at least an estimated $80m to make the January 2010 payment and $87.5m to repay all the arrears, plus interest. Some investors have demanded that the parent Fidelity Life Assurance should dip into its reserves to cover the interest payments.

But Fidelity actuary John Smith said although investors' capital was guaranteed by Westpac, the offer document stipulated in 22 places that the investor bore the risk of interest payments not being made.

Mr Smith said investors could sell their bonds on the NZDX market, where they last traded at 74 cents compared with the $1 subscription price.

Concerned investors can contact the company's trustee, New Zealand Guardian Trust.