THE cash-strapped Anglican Diocese of Newcastle's financial position has gone from bad to worse after it poured $3 million into what has been described as "one of the worst investments ever" to appear on the Australian Stock Exchange (ASX).
In just five months, the diocese suffered a devastating financial loss after it plunged $3 million into Virgin Australia that collapsed in April amid the COVID-19 pandemic.
News of the financial black hole comes as the diocese moves to undertake a radical restructure designed to save money and centralise control under one management board.
In November last year, the diocese was among many yield-hungry debt investors which snapped up $325 million in Virgin Australia notes on the ASX, that were to pay a sky-high interest rate of 8 per cent.
At the time the notes were issued, corporate debt expert Jonathan Rochford described the unsecured direct corporate bond offer, usually an investment reserved for the big end of town, as "very junky".
After the Virgin crash in April, Mr Rochford said "the listed Virgin Australia bonds look set to go down as one of the worst investments ever to appear on the ASX".
"After being issued in November 2019, the bonds didn't even make it to their first interest payment in May 2020," Mr Rochford said.
A spokesman for the diocese confirmed the investment this week and said it followed advice from the Anglican's long-standing financial adviser, stockbroking firm Ord Minnett.
The diocese also revealed an "increased awareness" of a $7 million decline in profitability of Anglican Care last financial year and said the aged-care provider expected to record a $5 million loss this year.
Insiders told the Newcastle Herald the multi-million dollar Virgin loss would have a "huge impact" on the diocese's financial position, already under stress due to compensation payouts to abuse victims.
In the past decade, the diocese has sold 50 properties worth about $34 million in an effort to shore up its financial position.
"We're talking here about an entity that was already under a lot of financial pressure, this will have increased that immensely," an insider said.
"There are many Hunter families that give very generously to the church, including estates, no doubt they would be very upset at this significant loss, just as the diocese is."
As a Virgin debt investor, or bondholder, the church has no security over its investment and is ranked second-last before shareholders, which are expected to be wiped out.
Virgin went into administration on April 21 with debts of $6.8 billion. Earlier this month, creditors voted to accept the sale of the stricken airline to US private equity group Bain Capital.
Under the deal, bondholders - many of them mum-and-dad investors - are expected to get nine cents in the dollar, meaning the diocese would recover about $270,000.
The diocese spokesman declined to answer if the investment was approved by the central board which is headed by the Bishop of Newcastle Peter Stuart.
"In November 2019, when the security was purchased as part of the overall investment strategy, the fund management adviser advised that it was a security that offered investors value on an absolute and relative value basis," he said.
"This investment represented 1.6 per cent of the investment portfolio."
According to the most recent publicly available financials, the Anglican Savings and Development Fund (ASDF) - which according to its website acts like a bank holding funds for church entities, parishes and individuals - was worth $138 million and had $2.8 million in retained earnings at the end of 2018, meaning the Virgin loss would have almost wiped out its entire equity at that time.
The financials also reveal the fund recorded a $556,327 investment loss in 2018.
Anglican Diocese of Newcastle entities Anglican Care, the Samaritans and schools all use the fund like a bank.
"Our investors receive competitive interest rates with all funds invested according to the ethical guidelines of the Anglican Church of Australia," the fund's website reads.
"Funds are also used to support loans made to parishes and Anglican affiliated organisations at favourable interest rates.
"Your investment helps us support the missional initiatives of the diocese and provides a valuable contribution to our Anglican community."
The diocese spokesman said at August 31, this year, the fund was worth "in excess of $130 million" and had more than $5 million in equity.
When asked if the Virgin loss had been written off, he said the decision "about financial asset impairment" would be made on advice from investment managers "prior to the end of the year", indicating the fund's $5 million in equity will be reduced by more than half in coming months due to the bad investment.
An insider said it would take "a long time" to clawback the financial loss suffered in the Virgin investment.
Ord Minnett did not respond to a request for comment.
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