DRESDNER RCM'S UK EQUITY OFFERING ALLOWS LOAN NOTE HOLDERS TO SHELTER FROM CAPITAL GAINS TAX
Dresdner RCM has launched a mainstream UK equity investment trust to be marketed to intermediaries despite being designed for loan note holders from two recent corporate takeovers.
The British Portfolio Trust was set up to cater for needs of the holders of loan notes issued after the takeover of Blue Circle Cement by French building materials group Lafarge and the demerger of Shopgood, subsequently renamed Laurel Pubs Limited from Whitbread and its subsequent sale to Morgan Grenville Private Equity.
The loan notes, an instrument issued instead of cash on the cash-takeover of a company, allow holders to defer capital gains tax liabilities instead of having it all fall in the year of the takeover.
Loan notes pay extremely low dividends, however, and the creation of the Dresdner trust will allow the holders to shelter the gains they made from the corporate deals while giving them the potential for capital growth from the UK equities market and a modest income.
Dresdner said the two corporate actions created about £110m in loan notes, with about £69m in the hands of ex-Whitbread shareholders. Of the total amount, the fund management group has letters of intent committing £37m to the trust launch, although it hopes that marketing through intermediary channels can substantially increase the final size of the trust.
Although the trust is mainly designed to cater for the loan note holders' needs, it will be marketed through Dresdner's usual intermediary channels. An additional offer for subscription through Cazenove & Co has opened and will close on 5 December.
The trust, which will have the option to gear 20% through bank borrowings, will issue only ordinary shares at an initial issue price of 150p. The £37m committed through letters of intent would result in 24.6 million shares.
There is no limit on the life of the trust, but the company's articles of association provide for an AGM to be held in 2008 to determine its future, and at every fifth AGM thereafter.
Simon White, head of investment trusts at Dresdner, said the trust will be run in a similar fashion, although it will not mirror, the Dresdner UK Exempt Trust, managed by Neil Dwane, head of UK and European equities at the group, who also manages the Brunner Investment Trust.
Dwane, who heads up the new trust, will invest principally in UK equities, mainly in the FTSE 100, but will also include medium-sized and smaller companies. Its benchmark will be the FTSE All-Share Index.
Other investments, such as fixed interest and unquoted securities, may from time to time form part of the company's portfolio. Investment in unquoted securities will not exceed 5%.
The offering will aim to provide an annualised net dividend of 2.5% in the first year. The annual management charge will be 1%. The trust will also be available through the Dresdner regular savings scheme.
White said: 'We believe that with markets having fallen, this is a good time to be launching a generalist UK trust.
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