KEY POINTS:
ING New Zealand is set to shut down four funds which managed more than $500 million after the global financial crisis shattered investors' confidence.
The company, which is 51 per cent owned by Dutch banking giant ING and 49 per cent owned by Australia's ANZ Bank, has recommended
winding down the unit trusts due to the difficult market conditions.
Two of the funds, the Diversified Yield Fund and the Regular Income Fund, have been frozen since March when ING stopped 8000 investors from withdrawing their money.
At the time the investment in the two funds was valued at $521 million - that has since shrunk to $273.5 million.
ING has now also stopped withdrawals and any applications for withdrawals from its Credit Opportunities Fund and Enhanced Fund which together have about $37 million held by 711 investors.
Investors would be asked whether they want an immediate or managed wind-down, the company said.
The Credit Opportunities and Enhanced funds, both created in October, invest in corporate bonds, mortgage-based securities and collateralised debt obligations, while the Diversified Yield Fund and Regular Income Fund 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.
Rights to the CDOs and CLOs are then sold to investors like ING.
These products have been hit hard by the credit crisis and trading seized up early this year when investors fled for the safety of cash.
The collapse of Lehman Brothers in the US in October then exacerbated the credit freeze and a slump in confidence.
ING has had difficulty pricing assets or selling them to fund withdrawals from the funds.
ING New Zealand chief executive Helen Troup said it was not unusual for fund managers to review and close down funds but the present economic conditions had led to closer scrutiny.
"In today's market every firm is watching their funds weekly if not daily."
Troup said at this point it did not plan to close any of its other funds although they remained under constant review.
Investors in the Diversified Yield and Regular Income funds would vote on a wind-down by March 31 next year and will be offered a sweetener in the form of a $100 million payout if they agree to a managed wind-down, to be made within weeks of the meeting.
The $100 million is a loan from ING and the ANZ and would have to be paid back first before investors get any more of their money back from the wind-down of the assets.
Troup said the initial cash payment was not an indication of the total amount investors would get back but admitted it was very difficult to give any certainty on that at this stage.
However the company would give an indication of ranges and scenarios as part of the documentation sent out to investors over the next few months.
She said the funds were still getting coupon payments - interest payments on the loans - so they might increase in value again once economic conditions improved.
Defaults on the loan market were still at 3 per cent but ING expected them to rise further.
Troup said 2009 was going to be a difficult year and if investors voted for an immediate wind-up instead of a longer one it was likely ING would not be able to deliver a maximum return.
Troup could not put a timeframe on how long the wind-down could take but said it would not be less than two years and she hoped it would not be greater than five to six years.
The interest on the loan would be charged at a commercial rate which Troup said was likely to be linked to New Zealand's official cash rate.
"The proposal is to get this $100 million into the hands of investors so they can invest and control it."
The vote, which will be held in Auckland, will require a 10 per cent quorum and needs 75 per cent approval to pass.
Investors would be briefed about the proposal at key meetings around the country before the meeting was held.
END OF THE ROAD
* Four funds to be shut down.
* More than $500 million invested.
* 8700 investors affected.
* Investors to vote on the wind-down in the new year.
