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F&P Finance offering big incentive for 1yr rates

Fisher & Paykel Finance has devised a strategy aimed at encouraging debenture investors in to investing in non-guaranteed investments.

Wednesday, September 29th 2010, 9:52PM 3 Comments

by Sophia Rodrigues

The finance company is offering 7.50% for 12-month non-guaranteed debentures which is a hefty 350-basis-point premium to a similar guaranteed debenture.

While around 150 basis points represents a cost to F&P Finance to cover the cost of the government guarantee, the balance 200 basis points is what the company wants to offer investors to start looking at non-guaranteed deposits, managing director Alastair Macfarlane says.

For the company it's a strategy aimed at getting investors to start looking at a world beyond the government guarantee and thus look at terms beyond 12 months like for example two years where the company is offering 8%.

"We want to demonstrate to investors that the tenure of the Crown guarantee is finite and investors now need to start assessing the risk profile of difference companies," Macfarlane says.

While debenture investments are an expensive option for the company, the need to diversify out of a conservative strategy reliant on bank loans is greater, Macfarlane says.

F&P says it is starting to see steady increase in debenture inflows recently probably reflecting investments from South Canterbury Finance investors who were repaid their bonds. Debenture holders are due to get their money in mid-October.

Among other finance companies, Equitable Finance is offering 7.25% for 12-month non-guaranteed debentures at a 75-basis-point premium over guaranteed debentures, Marac is offered 6.25%, again at a 75-basis-point premium and PGG Wrightson Finance is offering 6.95% at a 145-basis-point premium.


« TD rates can't go higher: WestpacSCF debenture holders payment delayed »

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Comments from our readers

On 30 September 2010 at 12:25 pm Will said:
And why not invest? Evidently the non-guaranteed are guaranteed as well provided the maturity is before 31/12/2011 (as we saw with SCF). The Govt will want to "simplify" the process and payout on all.
On 30 September 2010 at 8:18 pm Arty said:
Are the rates offered high enough to warrant the risk? My view is they are not, especially around 7% and even at 8%. The reason is the retail on-lending is generally of a higher risk, 2nd or 3rd tier – higher risk borrowers. The securities are generally depreciating assets. For myself I have funds on call with a Government Guarantee in one of few larger co's left. That co's share price has languished, I figure if the market considers it not a good investment,one has to look hard at the return being offered and appraise the risk. The question is, what rate would compensate the risk a saver takes for lending an unsecured cash loan to a stranger, because that is in effect the terms. I reckon 9 to 10%.
On 1 October 2010 at 6:58 am Stuart Mason said:
Even at the higher rates Arty talks about, I suspect the majority of past investors in the secondary finance market will return to the major banks. For me, the SCF rollercoaster ride was the last straw. With it's receivership, and whatever else emerges over time, the implications for the credibility of rating agencies assessments (SCF was investment grade (S&P BBB- ) rated well into 2009 )is at zero. Only fools and ostriches will carry on as though nothing has happened.
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