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 The Australian Securities and Investments Commission (ASIC) has warned people interested in interest-bearing investments, especially retirees looking for secure returns, to take extra care with debentures, unsecured notes and other interest-bearing investments offering higher than usual returns.
'Investing in high-yielding company debentures is vastly different from a term deposit or even managed funds', said Mr Richard Cockburn, ASIC's Director of Corporate Finance. 'It's a do-it-yourself strategy where you or your adviser must understand the risks you're taking and the quality of the companies you're investing in.
'Be wary of putting all your eggs in one basket', he said.
'In 2003-04, ASIC had to step in and stop more than $1.8 billion in debenture fundraising until companies fixed up prospectuses that did not make the grade.
'This is not acceptable. These investments were being offered to the public, often targeting retired people who place a high value on the safety and security of their money'.
1. Higher returns mean higher risk. 'Returns of even 1-2% more than the going market rate signal higher risk, so you or your adviser must go through the prospectus with a fine-toothed comb. If ASIC steps in, and the company issues a supplementary or full replacement prospectus, search out the new information these documents contain so you're better informed', he said.
2. Company debentures are only as good as the company that issues them. While some companies may get independent ratings agencies to assess the quality of their securities, they don't have to. In that case, you and your adviser are on your own. Companies not listed on the stock exchange also don't have to keep investors updated continuously about matters that affect the value of your investment.
'ASIC has forced these examples of extra risk out into the open. While the disclosure problems were corrected, investors owe it to themselves to make sure they understand the implications of fresh information. If you or your adviser aren't sure, you may be better off investing elsewhere.'
© Copyright ASIC Media Release, 27 July 2004
http://www.asic.gov.au/fido/fido.nsf/byheadline/04-242+$1.8+billion+at+stake%3A+warning+to+investors+in+high-yield+debentures?openDocument
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