KEY POINTS:
Investors in a New Zealand-listed bond who have had their interest payments suspended say the bond's parent company should make up the difference.
The Fidelity Capital Guaranteed Bond was due to make an interest payment to investors yesterday but told them this week it would be suspended due to a shortfall in the fund caused by volatility in the US markets.
Auckland investor William Cairns, who owns investments in the bond through several family trusts, said it was pretty serious that the bond had deferred the interest payment and the insurance company behind it should top it up to avoid reputational risk.
"This is their reputation at stake."
Cairns said the parent company would probably pay a dividend to its shareholders and pay its directors and asked why investors in the subsidiary bond should be the ones to miss out. "I'm just disappointed that they haven't topped it up," he said.
The call follows comments from another investor, who did not wish to be named, who also believed the parent company should cough up the shortfall.
But Fidelity Life Assurance chief executive Milton Jennings said the parent company was not liable.
"It was quite clear in the investment statement, the capital is guaranteed but the risk of the coupon payment was with the investor."
He said it would have been different if Fidelity Life had taken the $75 million bond money and used it to grow its own company. "It is quite unrealistic to expect Fidelity Life to fund the $2 million to $3 million shortfall."
Jennings said he was not concerned about the reputational risks of the business as long as investors were informed of the situation.
Fidelity Life was making every effort to get the Tyndall-managed fund back on track.
In recent months the manager had widened the spread on the options to 30 points each way and reduced the time frame of its option contracts to 21 days to reduce risk.
"The bond is in its early stages and we have $76 million sitting in bank deposits," he said. "It has earned 6 per cent over the last five months, so we just need the markets to behave to recover those losses from June and July."
Auckland-based specialist commercial and litigation lawyers LeeSalmonLong lawyer Paul Davies said that in general parent companies were not liable for the debt owned by their subsidiaries, although there were some exceptions.
