ASIC warns on hybrids
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Christine St Anne is Morningstar's online editor.
Corporate watchdog ASIC has stepped up its warning to investors regarding the launch of a number of hybrid securities that have hit the market recently.
Although ASIC did not single out specific hybrid security offers, the corporate regulator says recent offers have particularly complex features that make them riskier than other investments, including corporate bonds.
"It is good to see that ASIC has reiterated its warning to retail investors about the risks of hybrids, particularly given the rush of new issues," Morningstar equities analyst Ravi Reddy says.
"They are riskier than banks deposits and in a worst-case scenario it is possible for investors to lose all their investment."
Reddy says while the yields look attractive, particularly in a low-interest-rate environment, the adage of "high return equals high risk" applies.
Hybrid securities are one way companies can borrow money from investors while paying interest to investors in return for their money.
Hybrid securities include a mix of debt and equity (through shares) in their structure and are traded on the Australian Securities Exchange.
ASIC commissioner John Price says investors should be wary and should fully understand the risks of such offers before they make an investment.
"Despite household name companies and trusted brands being linked to certain offers and promises of 'high yields,' consumers should be very careful," Price says.
ASIC found that in some circumstances, hybrids had not been paid back when investors expected because the company had a choice about when to redeem those investments.