5 Jul 2013

Retail investors with Genesis bonds may feel aggrieved

8:22 am on 5 July 2013

Retail investors who bought bonds sold by Genesis Energy two years ago may feel aggrieved because the Government-owned company is buying back their high-yielding bonds and replacing them with bonds paying a much lower interest rate.

The $275 million worth of 30-year capital bonds which Genesis sold in the first half of 2011 paid 8.5% interest.

Radio New Zealand's business editor says investors were assured at the time they bought them that the earliest Genesis would buy the bonds back would be five years after the sale when the interest rate paid was due to be reset to current market rates anyway.

In other words, those investors believed they had an 8.5% interest rate locked in for five years even if prevailing interest rates fell, as they have.

However, just two years into that 30-year term, Genesis is replacing the bonds with another lot of capital bonds paying about 5.8% interest - the actual rate will be set next Wednesday.

Genesis is citing a change in the way the international ratings agency, Standard & Poor's, views capital bonds as its reason for repaying the 2011 bonds early, something that was provided for in the fine print within the prospectus.

Genesis declined to be interviewed on the matter but spokesman Richard Gordon says because S&P's view of the bonds has changed, the previous interest rate is no longer appropriate.

Genesis is one of the companies the Government is planning to float on the stock exchange and the bond investors are exactly the type of retail investors the Government would like to buy Genesis shares.