In a surprise move yesterday, Great Eastern Life (GE) made a voluntarily offer to do an early redemption of their Greatlink Choice (GLC) products from 18,000 of its investors.
The Greatlink Choice products were sold in five tranches between 2005 and 2007, collecting $594 million in premiums. It was marketed as a safe kind of investment with an annual payout of between 3.5% to 4.9% of the capital invested.
It is a similar class of product to the Minibond, DBS High Notes and some of the Pinnacle notes which have been widely sold to other investors. While none of the Greatlink Choice has defaulted yet, their current market valuation ranged from 19% to 61% of the original capital.
Owners of the Greatlink Choice products will now have an option to opt for a full redemption of their Greatlink Choice investment at their original capital less the total payouts they have received to date. This option will be available to them from now till 28th Aug 2009.
GLC policyholders will receive a notice from Great Eastern on the procedure for acceptance of this offer. GLC policyholders who have questions on the offer may also call Great Eastern’s Customer Service Officers at 1800-248-2888 or contact their personal GE life planners.
I applaud this move by GE as it gives investors of the Greatlink Choice products an early exit option. I am sure many of these investors who thought Greatlink Choice was a safe product would have been having sleepless nights seeing the value of their investments plummet. This is especially so for the Greatlink Choice products which are maturing in 2012/2013 and have a higher risk of default.
From the perspective of GE, I am sure this helps to generate tremendous market goodwill. And while they will have to spend $250 million making this early redemption, if you think about it, this $250 million is not exactly a loss at all.
Remember that none of the Greatlink Choice has defaulted yet and if it stays the same way, GE would have to refund 100% of the premiums at maturity back to investors anyway. And in giving this early payout, they would be redeeming at less than 100% of the capital as it is net of total payouts received.
Of course, if there is a default subsequently, then GE would have to bear the loss themselves.
Overall, I think this move is a win-win for both GE and their GLC customers.
I am sure investors of Prudential’s Pru 3Plus and Yield 15/20 will be casting an anxious look at Prudential and see whether they will offer something similar.
