News Round Up

AUT tax changes will have minor impact: Podmore, Perpetual changes given the OK, Corporate bond rate defaults fall.

Monday, August 18th 2003, 6:36AM

St Laurence Group, which has recently launched its Number One fixed income trust believes that the window of opportunity for tax-effective Australian unit trusts has shrunk from 30 months to 18.

Director Kevin Podmore says Finance Minister Michael Cullen’s announcement that the government intends to close the loophole which makes AUTs tax efficient was expected.

“At the time of structuring Number One we considered there to be a high probability that the Government would, sometime in the future, change the tax law pertaining to AUT’s,” it says.

Podmore says the impact of any changes will be minor as the minimum investment period allows investors to exit their investments prior or after a law change is introduced.

The trust’s performance management fee results in the manager, and not the investor, bearing the majority of any tax burden that may arise from changes in tax legislation.

"Tax benefits may still be available even after new legislation has been introduced," Podmore says. “Our tax advisor, along with a number of others, believe the change to the tax treatment of the AUT’s will most likely come in the form of the risk free rate of return method.”

Perpetual changes approved
Morningstar has reconfirmed its exisiting business and management strength and five star rating for Australian based fund manager Perpetual Investments following the appointment of a new chief executive.

Highly regarded ceo Graham Bradley announced earlier this year that he was stepping down from the job. Last week the company announced that Macquaire’s David Deverell will take over the role.

Morningstar says the change is unlikely to lead to major changes in strategic direction, however it has some concerns about potential staff instability.

The researchers says it has retained the five star rating because Perpetual says it will continue to focus on excellence in funds management and its strong emphasis on delivering quality investment performance.

Corporate bond rate defaults fall
Moody’s says that the global speculative-grade corporate bond default rate fell to 5.8% in July from 6% in June, and the latest forecast suggests that the default rate may fall more in 2004 than previously predicted.

Moody's forecasting model indicates that the default rate will end the year at 5.9%, before falling further to 4.9% by July 2004. July's forecast marks a significant reduction in the forecasted default rate, which, for much of 2003, had predicted little improvement.

The more optimistic forecast is the result of both lower actual defaults than expected over 2003 thus far, as well as a marked improvement in rating activity for speculative-grade rated issuers.

"In addition to improving fundamental credit quality, a very receptive high-yield bond market has probably helped to lower the default rate somewhat," said David T. Hamilton, Moody's director of default research.

"These market conditions have made high-yield refinancings easier."

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