What to do with your South Canterbury money

Investors wondering what to do with their about $1.73 billion in South Canterbury Finance and Allied Nationwide Finance refunds don't have to settle for bank deposit rates.

Thursday, 9 September 2010

by Jenny Ruth

There are a couple of humdinger sure bets available in the stock exchange's listed debt market, sure bets because they also come with the same government guarantee which has ensured the South Canterbury and Allied Nationwide investors will get their money back with interest.

PGG Wrightson Finance has $100 million of bonds maturing on October 8 next year and are covered by the government's guarantee.

The Wrightson bonds are currently trading at 7.45%. That compares with the 3% to 5.3%, depending on the sum invested, the major banks are offering on their one-year term deposits.

There's also the liquidity advantage: because the bonds are listed, investors are likely to be able to sell them with much less of a loss than they would incur if they had to break a term deposit.

Even juicier is the 10.15% Marac Finance's $104.2 million in bonds are trading at. While Marac's bonds mature in July 2013, they are covered by the government guarantee until December 31, 2011.

Should Marac collapse before that - the "BB+"-rated company has just reported a $14.3 million annual net profit and reduced its gearing to 84.1% at June 30 compared with 84.8% a year earlier - its bonds will become due immediately.

Another option which would deliver a less spectacular but still superior return than term deposits are the banks' listed debt, although they are subordinated rather than having the senior debt status term deposits enjoy and therefore slightly more risky. However, ANZ has a "AA" credit rating.

ANZ National has $350 million in bonds currently trading at 6.05%. While nominally maturing on September 15, 2016, the bank is expected to redeem them in September next year. ANZ is currently offering 5.2% for one-year term deposits.

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