Bonds rate mostly junk

Only one New Zealand bond issue has received top marks from a bond and fixed interest rating series, with most scoring poorly.

Grosvenor Group's Bondwatch assigned its sole G1 rating to UnitedNetworks' fixed rate bonds.

That meant the company had an excellent ability to meet its obligations and a high level of security.

The service assesses the risk and relative value of investment-grade fixed interest investments in New Zealand, based on information from investment statements and prospectuses.

Bond issues are assessed against 47 criteria, including the history and ownership of issuers, governance and management structures, as well as balance sheet and financial analysis.

The ratings table contains eight levels, with each level indicating a different tier of assessed risk.

Grosvenor chief investment officer David Beattie said recent problems in the fixed interest and bond market, such as the default on payments of Metropolis bonds, highlighted the need for investors to fully understand risk in the expanding bond and fixed interest market.

"Our concern is that, firstly, investments may not be appropriate for the underlying risk appetite of an individual investor, and reaching an informed view of the risks is important.

"Secondly, returns for investments with similar risk should be aligned.

"The safety of a bond investment is entirely dependent on the ability of the debtor to meet its obligations. It is the assessment of that risk that investors need to consider, and Bondwatch assists that process."

More than half the 36 fixed interest issues were rated G5 or lower, meaning there was "an adequate ability to meet current obligations, but uncertainty about levels of security over the longer term particularly under adverse business conditions".

The second highest rating, G2, was assigned to Fonterra Co-operative's perpetual capital notes, and Telecom's Telebonds.

Two were rated G8, recommended for "sophisticated investors only" - St Laurence Mortgages' redeemable preference shares and St Laurence Property and Finance's secured bond.

- NZPA