NZ fund misses bond payment due to credit crunch

WELLINGTON, Jan 15 (Reuters) - A New Zealand bond issuer deferred an interest payment due on Tuesday because of debt market volatility, though market players played down the risk of further domestic contagion from the subprime mortgage turmoil.

Fidelity Capital Guaranteed Bond Ltd had said on Jan. 3 it would not make the six-month payment on a NZ$75 million ($59 million) listed bond FDY010.NZ, a move it had already flagged back in November. It said it would roll the payment over to July's scheduled payment.

Though the company has no exposure to subprime mortgages, it had warned last June that erratic movements in debt market yields might affect its ability to make interest payments.

A fund manager said the problem seem confined to Fidelity.

"The investment strategy inside the product has failed, that's why they fell behind (with) payments," said Mark Brown, portfolio manager at Alliance Bernstein with NZ$2 billion in fixed interest and cash under management.

The 6.3-year bonds have an interest rate of 9.25 percent and the fund's capital is guaranteed by Westpac Bank.

New Zealand financial institutions are engaged primarily in domestic investments and have been unaffected directly by the subprime mortgage turmoil that has claimed high profile victims in major world markets.

However, some finance companies involved in consumer and motor vehicle lending have collapsed because they could not attract more funds as investors pulled out their money or did not reinvest in their securities. (NZ$1=$1.27) (Reporting by Gyles Beckford)