Aviva shares - cancellation / tender of preference shares

DRS1

and a voting fee paid as a dividend.

Oh dear.  I had always assumed that the voting fee would be treated as a capital receipt.  But Aviva do say it will be taxed as a dividend.  Just as well I sold the ones I held outside my ISA.

wmb194

DRS1 said:

and a voting fee paid as a dividend.

Oh dear.  I had always assumed that the voting fee would be treated as a capital receipt.  But Aviva do say it will be taxed as a dividend.  Just as well I sold the ones I held outside my ISA.

Same as with the RSA 7.375% preference shares (LSE:RSAB) cancellation/tender last year which also had a 2p voting fee paid as a dividend. With that one the cancellation was approved by the pref holders. Including me, probably a lot of the same people who own these Aviva/GA prefs.

DRS1

wmb194 said:

DRS1 said:

and a voting fee paid as a dividend.

Oh dear.  I had always assumed that the voting fee would be treated as a capital receipt.  But Aviva do say it will be taxed as a dividend.  Just as well I sold the ones I held outside my ISA.

Same as with the RSA 7.375% preference shares (LSE:RSAB) cancellation/tender last year which also had a 2p voting fee paid as a dividend. With that one the cancellation was approved by the pref holders. Including me, probably a lot of the same people who own these Aviva/GA prefs.

Ah I sold those RSA prefs just after the takeover so I never looked at the tender documents for those shares.  But maybe I need to go back and look at the offer for the Leeds PIBS.

warehouseman

Aviva is attempting to bribe people with this proposal, because it benefits them rather than the preference share shareholder. If you think about this logically, the word in these preference shares is 'irredeemable' which means they can never be repaid without shareholder approval. In their present form they are a great income generator for pensioners and the like. Reputable advisor Chancery Lane Income Planners are urging financial advisers and retail investors holding the preference shares to ''vote against'' Aviva's motion. "Do not take it up because financial planners, you will not find a suitable equivalent to replace this," Chancery founder Brodie said. "The other scary thing is, if Aviva get away with it, it's a leaky dike.".  It makes sense when you look at it like that. Why accept a slightly higher overall one off price for this holding, when you could potentially retain the preference share income forever. Unfortunately institutional investors might see it as a quick gain for them, so don't be surprised if the overall vote goes against small private investors. However, I am a private investor and I am VOTING AGAINST the cancellation of these preference shares in the faint chance the motion fails.

wmb194

warehouseman said:

Aviva is attempting to bribe people with this proposal, because it benefits them rather than the preference share shareholder. 

If you think about this logically, the word in these preference shares is 'irredeemable' which means they can never be repaid without shareholder approval. 

In their present form they are a great income generator for pensioners and the like. 

Reputable advisor Chancery Lane Income Planners are urging financial advisers and retail investors holding the preference shares to ''vote against'' Aviva's motion. "Do not take it up because financial planners, you will not find a suitable equivalent to replace this," Chancery founder Brodie said. "The other scary thing is, if Aviva get away with it, it's a leaky dike.".  

It makes sense when you look at it like that. 

Why accept a slightly higher overall one off price for this holding, when you could potentially retain the preference share income forever. 

Unfortunately institutional investors might see it as a quick gain for them, so don't be surprised if the overall vote goes against small private investors. However, I am a private investor and I am VOTING AGAINST the cancellation of these preference shares in the faint chance the motion fails.

"...they can never be repaid without shareholder approval." Right, but ORDINARY shareholders also get to vote and they vastly outnumber the PREFERENCE shareholders. That's what Aviva tried before i.e. redemption at par with no special dividend but luckily the ordinary shareholders said that Aviva needed to make a fair offer. So that proposal was cancelled and, fast forward a few years, this is where we are now, a fair offer* with a preference shareholder only advisory vote on the cancellation.

The danger with voting the cancellation down is that the next offer might not be as good, and it could try redemption at par again.

These sorts of securities tend not to last forever - last year RSA's prefs were cancelled with a similar scheme - and a change in the law makes it so these will no longer qualify as loss absorbing capital, so they offer no benefit to the company, effectively just a type of expensive debt. They've been around for 30 odd years so they've had a good run.

*At par, 100p per share, there are £450m of these Aviva and General Accident prefs outstanding. Offering £660.3m plus accrued dividend and a 2p voting fee per share (£9m if every share voted) to cancel these when it doesn't have to isn't bad.

warehouseman

Fair points WMB194.  Depends on what angle you're looking at it from. I imagine they will be cancelled given the institutions and small ordinary shareholders. To them and the company, it's no doubt seen as an onerous payment (high interest). I was merely looking at as a preference shareholder and also the pensioner type reliant on a decent regular income. On a similar subject, I imagine PIBs will go down the same route in due course. In fact one of mine was cancelled a year ot two back. It had done me well for twenty years!

wmb194

warehouseman said:

Fair points WMB194.  Depends on what angle you're looking at it from. I imagine they will be cancelled given the institutions and small ordinary shareholders. To them and the company, it's no doubt seen as an onerous payment (high interest). I was merely looking at as a preference shareholder and also the pensioner type reliant on a decent regular income. On a similar subject, I imagine PIBs will go down the same route in due course. In fact one of mine was cancelled a year ot two back. It had done me well for twenty years!

Yes, PIBs have been slowly disappearing - many have/had optional redemption dates and the BS' have been exercising them.

If you want some ideas, DYOR etc:

If you want another irredeemable ("irredeemable") insurance company preference share there's Ecclesiastical Insurance Office 8.625% (LSE:ELLA). You'll notice the price popped after the Aviva announcement and the expectation is that Ecclesiastical will need to do something with these at some point.

https://www.londonstockexchange.com/stock/ELLA/ecclesiastical-insurance-office-plc/company-page

There are some banking prefs as well: Standard Chartered, Santander, Lloyds and NatWest. They're similar to the insurance issues but non-cumulative if the dividend is passed. Probably a bit riskier than the insurance ones and I wouldn't put it past them to try to redeem at par (given its history, especially Lloyds).

Another legacy one is Northern Electric, LSE:NTEA.  Last I checked, ultimately owned by Berkshire Hathaway.

https://www.londonstockexchange.com/stock/NTEA/northern-electric-plc/company-page

A low risk, pseudo-annuity option would be to directly buy gilts (not via a fund). Capital gains are CGT free and at the moment some of the yields are quite good.

https://www.yieldgimp.com/

weezie7

Bit late but, how do you know if your shares are Ordinary or Preference? Is it specified on paperwork or something?

DRS1

weezie7 said:

Bit late but, how do you know if your shares are Ordinary or Preference? Is it specified on paperwork or something?

How do you hold the shares?  If you have a certificate then it will be on there in the name - usually in capitals and bold type.  If you hold with a broker it should be obvious from the description or the ticker in your list of holdings.

wmb194

weezie7 said:

Bit late but, how do you know if your shares are Ordinary or Preference? Is it specified on paperwork or something?

If you're not sure you most likely own the ordinary shares. Buying preference shares usually takes an extra level of knowledge and, given how rare they are these days, interest in the subject.