ING Offer Is this the final chapter

The big news for those investors who have investments in either the ING Diversified Yield Fund (DYF) or the ING Regular Income Fund (RIF) was the finalised settlement offer from ING/ANZ.  Historically, no fund manager in New Zealand has ever made an offer of this kind to disgruntled investors. 

Over the past 15 months or so, we have had investors in these funds contact us about what to do.  Our initial advice to these people before the funds were closed to redemptions, was to sell all holdings before the price fell further.  Once the fund was closed to redemptions, there was little that individual investors could do.  Those who invested via the ANZ Bank did however have the benefit of being able to complain to the Banking Ombudsman.  This course of action was taken successfully by a number of investors.

Most investors would have paid around $1 per unit for their purchases into these funds.  Under current market conditions the realisable value is likely to be in the range of 0 – 15 cents per unit.  ING are offering investors a Cash Out option of 60 cents per unit for the DYF and 62 cents per unit for the RIF with payment to be made no later than 28 August 2009.  There is also a Five Year option, whereby the units are sold to ING at the same price as the Cash Out option, with the proceeds to be invested into a special cash account with ANZ National Bank.  This account will pay 8.3% interest for the next five years while still providing access to all or part of the money. 

Some investors are up in arms that the offer will only proceed if the investor signs a release whereby the investor agrees to settle and release all claims, currently known and unknown, in connection with the fund.  The beneficiaries of the release include ING (NZ) Limited, ANZ National Bank Limited, Australia and New Zealand Banking Group Limited and each of their directors, officers and employees.  It also benefits the financial adviser who recommended the funds to the investor.  This is just a commercial reality and a means to bring it all to an end.  There are ongoing investigations by the statutory authorities regarding these funds.  Depending on the outcome of this, action could possibly then be taken against ANZ/ING.  We should disclose that our portfolio management clients do not have any holdings in these funds, having redeemed them in July 2007 at 94.38 cents per unit.

We believe that the offer is a good outcome for investors.  ING did not need to make the offer, however for commercial reasons they have decided to dig very deep.  By our calculations if the interest is compounded, DYF investors on a 19.5% marginal tax rate, receive an effective price after 5 years of just less than 84 cents per unit.  The same investor will have also been able to claim a tax loss using the forced CV rules of around 14.8 cents per unit.

Those investors who do not accept either of the offers have an uncertain future.  Their real risk is that legal action against ING would fail.  If legal action is taken on a contingency basis, then there will undoubtedly be high success fees to pay to the lawyers.  The net return to the investor most likely would be lower than the offer, with the only real beneficiaries being the lawyers acting for the investors.  Legal action could take years.  There is also the added stress that taking such action will bring.

The five year offer most likely will provide a high cash flow return for the next five years.  It will also provide flexibility for investors to explore other investment opportunities.