KEY POINTS:
ING New Zealand has sweetened its proposal for investors locked into two funds worth more than $500 million two months after a group of financial advisers labelled its initial plan "disgraceful".
Around 8000 investors in the Diversified Yield Fund (DYF) and Regular Income Fund (FIR) will be offered the choice of cashing out at a lower rate now or waiting five years for a higher level that will be guaranteed by the company.
Those who choose to cash out of DYF will get 60c a unit, if they wait five years they will get 83c. RIF investors are being offered 62c now or the promise of at least 86c a unit in five years.
The new offer is a marked increase on the first plan in December which proposed an initial $100 million payout in the form of a loan from ING's shareholders.
At the time ING said the payout would not have been the only money returned to shareholders but it would have to be repaid before further money could be given back to investors.
That proposal was rubbished by advisers who described it as a disgrace and said it could mean investors get back as little as 15c a unit.
ING New Zealand chief executive Helen Troup said the company was aware of the anxiety and speculation surrounding the funds and had endeavoured to come back to people as soon it could after consulting advisers and investors.
Troup said the two funds had been severely affected by the credit crunch and market turmoil.
"Unprecedented market conditions have created this unique situation in which these funds have been suspended for almost a year."
The funds' portfolios are made up largely of collateralised debt obligations (CDOs) and collateralised loan obligations (CLOs), financial products which package bank loans and other types of debts into securities.
While the funds had only a small amount of exposure to the sub-prime housing market, they were hit by liquidity issues after large numbers of investors withdrew their money and then struggled to price the debts after trading became almost non-existent.
Troup said the new proposal "will see most investors get the bulk of their money returned".
The five-year figure had been calculated on how much investors had put in, minus distributions they had already received and then divided by the number of units.
The lower up-front payout was based on the present value of the five-year figure, without the interest the funds would accrue in that time, she said.
If the funds recover beyond the five-year figure, investors will get more than the guaranteed amount.
Troup said the proposal could cost ING's shareholders up to $500 million depending on what investors decide and how much the funds recover over the next five years.
ING New Zealand is 51 per cent owned by Dutch giant ING and 49 per cent owned by Australia's ANZ Bank.
Hector Fsadni, a spokesman for several hundred investors who have formed an action group called the Frozen Funds Group, said it was a step in the right direction. "But it's still not good enough."
Fsadni said the group would continue to push ahead with a campaign for a product recall and full repayment of investors' money.
"Even though the offer is greatly enlarged, it's not really fair to look at 83c in five years - that's just a bit of a marketing thing. We are really going to keep pushing ahead."
Fsadni said the group believed the funds had been mis-sold and was working with the Commerce Commission on its investigation.
ING froze the two funds in March last year when they were valued at $521 million with units in DIF valued at 81.05c and in RIF 70c. Yesterday they were down to 27c and 21c respectively.
Investors will be sent the proposal in mid-May, if it receives approval from ING's trustee, with votes due to be cast in the week of June 15 around which time a meeting in Auckland will also be held for investors.
