Friday 6th of March 2009

OK it’s time to give a view on the latest proposal from ING for investors in its distressed CDO funds DYF and RIF. A funny thing happened on the morning of the announcement. No one knew anything was going to be announced last Wednesday, including I hear people within ING itself. I was having a yarn that morning with one of its competitors about the problems ING faced (as you do) and how it was going to get out of this rather large hole. The view discussed was that it was unlikely ING’s shareholders, that is ING and ANZ, would be writing a big cheque. Thus the conclusion was that it was difficult to see an answer or a way out of the mess. Well that line of thinking was wrong. Several hours later the company came up with Plan B. That is a guaranteed minimum payment of 83c and 86c in five years time for DYF and RIF investors respectively, or a cash-out now price of 62c and 60c respectively. The first thing is that this offer is miles better than the previous one. The earlier one where there was to be a $100 million loan to give investors some cash was not particularly flash. So on that point ING have to be given credit for binning a dumb idea and coming up with something better. Also, and very importantly, advisers should take huge credit for pressuring the company into coming up with a better plan. As for the price. Well the view is that the actual return investors get is something less than the number the company talks about. I understand it could be considered that the investors who stay in for five year are getting in effect a 6.7% annual return over that time, based on the current unit price (if they could exit now). Trying to get a good handle on the offer is hard as we still await the full details. What is interesting is that ING still seem to have faith in these products. Its first offer was, I suspect, predicated on the funds recovering. Even the second one has that feel about it too. When asked if there was alternative if investors voted this proposal down Troup said no. There isn’t a Plan C. PS: The other thing which has been occupying my mind is how long will this ING/ANZ joint venture last in New Zealand? From memory the New Zealand side of the deal weren’t that happy about it in the first place. (Not like the Australian side). This CDO issue has clearly put huge stress on the relationship and I would bet that the JV’s days a numbered. Just don’t know if the number is days, weeks or months.