Fai Lifts Borrowings
Sydney Morning Herald
Wednesday November 2, 1988
Mr Larry Adler's FAI Insurances has intensified its heavy exposure to Swiss franc borrowings with the launching of a 160 million Swiss franc ($A131 million) Eurobond raising.
The raising adds to the company's 655 million in Swiss francs debt, as disclosed in its annual report, which mature later than June 30 next year.
In all, 98 per cent of FAI's borrowings are in Swiss francs, and at a very cheap rate.
This latest raising has a coupon of just 5.25 per cent, payable annually over eight years.
The issue will be placed by S.G. Warburg Soditic SA with a total of 29 banks are underwriters.
Annual accounts show FAI's total borrowing position at $560.8 million, of which 98 per cent was raised in Swiss francs.
It also has a $233 million sterling exposure.
The company's exposure to Swiss francs was $548.3 million at June 30, up$57.4 million over the year.
While the Swiss franc provides very cheap finance, there also is a great risk, which has been well documented.
If FAI were to hedge these raisings fully, the interest rate advantage would be eliminated.
Mr Adler's strategy could be based on the assumption the Australian dollar has fallen so far against currencies like the Swiss franc over the past four years that it has little room for further deterioration.
Since 1984, the dollar has fallen by almost 50 per cent against the yen, mark and franc. For example, the dollar was worth around 2.2 Swiss francs in late 1984, but is now worth only 1.2.
Last year was a bad one for FAI's foreign exchange speculation leading to a net forex loss of $60.7 million before tax.
This loss compared with a $1.3 million foreign exchange loss the previous year, but followed a $38.5 million charge against shareholders' funds due to write-offs of deferred foreign exchange losses.
© 1988 Sydney Morning Herald
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