Fixed Interest Investments in New Zealand
In recent years, New Zealand's fixed interest rate investors have benefited from low inflation combined with some of the highest interest rates in the developed world.
The safest investment in New Zealand - in terms of getting your initial capital back - is thought to be government bonds. The trade-off for the high degree of security offered by these bonds is a lower interest rate than is available from other bonds available in New Zealand.
Many large and small companies in New Zealand offer relatively attractive interest rates on secured and unsecured bonds. These are often advertised in the financial sections of New Zealand newspapers.
Bonds offered by some of the smaller finance companies should be avoided. Ratings companies, such as S&P, have commented that, although some New Zealand companies offer high interest rates, they are not high enough to compensate for the risk involved.
In May 2006, a small New Zealand finance company - National Finance 2000 - went into receivership, unable to meet asset-to-debt ratios. 2,300 small investors had invested, on average, over $12,000 each with National Finance.
In June 2006, a larger finance company - Provincial Finance Limited - went into receivership after breaching covenants and ratios in its Trust Deed. There were also concerns about the adequacy of provision for doubtful debts. When it went into receivership, investors had $300 million of savings invested with Provincial.
To protect their capital, investors need to carefully scrutinise the finance companies advertising in New Zealand's newspapers. In particular, it is preferable to invest with companies that have a track record of two or three decades rather than two or three years.
By law, any company offering investments must send you a prospectus. Use the prospectus as a starting point for your own investigations. Carry out Internet searches for the names of the directors and for the company itself. If you find anything dubious, move on.
Alternatively, some organisations make efforts to rate the safety of fixed interest rate investments in New Zealand. Here are two of them:
http://www.chrislee.co.nz/Articles.htm
http://www.gfsg.co.nz/BondWatch.asp?WebPage=Rating
