Question 1: There are reports in the media today that Westpac could be facing a fine of billions of dollars due to money laundering. This is very concerning and comes at the same time as I am being offered the opportunity to buy new shares in their Share Purchase Plan (SPP). Should I still take them up?

Answer: Under the SPP, you will pay the lower of $25.32, or the weighted average trading price of Westpac shares on the ASX, less 2%, in the week leading up to the close of the offer on 2 December. This period hasn’t started yet (it starts next Tuesday), so you have no immediate market risk.

I will write more about this on Monday after I read the statement of claim, however my initial reaction is that any fine is likely to be less than $1bn (not billions of dollars as the media is so keen to play up) and that in due course, the market will move on from this issue. As it stands, I intend to apply for shares under the SPP.

Question 2: I should like your opinion on investing in Virgin Australia’s unsecured notes. They have a coupon of 8%. Originally, the issue size was $150m, however, due to strong demand, the offer was increased to $325m. Major shareholders are multinationals from Singapore and China plus Singapore and Etihad Airways. Is this an investment to consider?

Answer: As one of the experts noted at the Switzer Income Conference, single B rated issues (sub-investment grade) such as Virgin have (historically) a 17% chance of defaulting within 5 years.

An upside with Virgin are the major shareholders and its high profile. Arguably, “too big to fail”. However, in this scenario, there won’t be much sympathy for unsecured noteholders – rather, the sympathy will be for employees and customers. Certainly an investment to consider, as long as you understand that it is high risk.

Question 3: I have a question regarding lending to my SMSF. I have a fully set up SMSF investing in a property. The loan through my SMSF is over 6.5%. However, I can now borrow personally at 3.5% and would like to lend that money to my SMSF in order to save high interest rates. Can I do that ?

Answer (by Graeme Colley of Super Concepts): It is possible for an individual to obtain a loan personally and then on-lend the amount to the SMSF as a related party borrowing for purposes of a limited recourse borrowing. It obviously needs to meet the requirements of a limited recourse borrowing.

Where the superannuation fund has obtained a related party borrowing and the limited recourse borrowing arrangement is over property, it must meet the requirements of the ATO’s safe-harbour guidelines.  These require certain conditions to be met and are published in PCG 2016/5 which is available from the ATO website. Here is a link to a Q&A document: https://www.ato.gov.au/Super/Self-managed-super-funds/In-detail/SMSF-resources/SMSF-technical/PCG-2016/5-frequently-asked-questions/