F&P Finance offering big incentive for 1yr rates

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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.

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