Capital Gearing Trust

Hoenir

Answered in my earlier post. 

aroominyork

So can you please explain the meaning of "£1.1 billion standing to the credit of the Company's share premium account".

wmb194

aroominyork said:

It's not for a special dividend. It's to buy back shares to support CGT's discount control policy of keeping share price within c.2% of NAV. My question is whether there is over £1bn in the bank; that seems inconceivable.

Buying back shares or paying a dividend effectively amounts to the same thing and a company needs distributable  reserves to do this. It doesn't mean it has £1bn+ in the bank, presumably it's tied up in the investments it owns. 

It sounds like it's issued shares in the past above their nominal face value and it's now received permission to shift the premium to be able for it to be distributed back to shareholders.

aroominyork

Yes, CGT issued shares to keep the price from going far above 2% and is now having to reserve the process. However it would not have banked £bn in premiums! I guess it's just technical wording. Anyway, we can expect to see the discount to narrow to c.2% in February.

JamesRobinson48

aroominyork said:

Yes, CGT issued shares to keep the price from going far above 2% and is now having to reserve the process. However it would not have banked £bn in premiums! I guess it's just technical wording. Anyway, we can expect to see the discount to narrow to c.2% in February.

The enormous £1 bn balance on the share premium account results from the fact that the shares trade @ ~£46 each whereas their par value is only 25p.  So whenever a new share is issued, at a price of £46, only £0.25 is credited to share capital and £45.75 is credited to share premium account.

aroominyork

JamesRobinson48 said:

aroominyork said:

Yes, CGT issued shares to keep the price from going far above 2% and is now having to reserve the process. However it would not have banked £bn in premiums! I guess it's just technical wording. Anyway, we can expect to see the discount to narrow to c.2% in February.

The enormous £1 bn balance on the share premium account results from the fact that the shares trade @ ~£46 each whereas their par value is only 25p.  So whenever a new share is issued, at a price of £46, only £0.25 is credited to share capital and £45.75 is credited to share premium account.

That explains it. Thank you!

talexuser

How will this affect performance? stabilise the discount? I sold out early last year and topped up Personal Assets instead because of the poor calls lately.

aroominyork

talexuser said:

How will this affect performance? stabilise the discount? I sold out early last year and topped up Personal Assets instead because of the poor calls lately.

It won't affect performance but it will allow them to buy enough shares to reduce the discount to c.2%. That said, it only needs to climb about 1% to get there!

Hoenir

talexuser said:

How will this affect performance? stabilise the discount? I sold out early last year and topped up Personal Assets instead because of the poor calls lately.

Discount only widened when some retail investors panicked.  Even wealth preservation funds do lose money in a calender year, albeit rarely. 

aroominyork

Hoenir said:

talexuser said:

How will this affect performance? stabilise the discount? I sold out early last year and topped up Personal Assets instead because of the poor calls lately.

Discount only widened when some retail investors panicked.  Even wealth preservation funds do lose money in a calender year, albeit rarely. 

Do you think discounts in ITs only widen when investors 'panic', or was this a special case?