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Downing C benefit of Electra share offer

Downing Corporate Finance is looking to raise up to £20m in C shares for the generalist Electra Kingsway venture capital trust.

This VCT aims for income and growth. It will invest in VCT qualifying companies and listed smaller company equity investments. These will be established companies rather than early stage companies and will include those listed on Aim.

Electra Kingsway was established in 2001 and has raised a total of £22m to date. As at September 2006 – the date of its most recently published financial information – it had less than £500,000 in cash and is now almost fully invested, which is the reason for the C share offer.

The company believes further investment will be beneficial in helping to diversify the portfolio by allowing a greater spread of investments at various stages of the business cycle. The VCT will also continue its participation in co-investment deals with Electra Kingway VCTs 2 and 3. Fixed running costs will be spread over a wider base, reducing the overall costs for existing investors.

Around 70 per cent of the money raised will initially be invested in a portfolio of fixed income securities, while 30 per cent will go into the Electra private equity investment trust and Electra active management Oeic. This money will gradually be invested in VCT- qualifying companies.

The VCT will focus on high growth companies with good business plans where there is a strong demand for their products and services. Businesses should be cash generative, have access to the capital needed to achieve business plan targets in business and have quality management teams.
One of the main benefits of the generalist approach is that the VCT is not restricted o a narrow sector of the market. It can move towards unquoted companies when Aim companies are overvalued.

However, changes announced in the last budget have made VCTs less tax efficient. These changes reduced income tax relief on VCTs to 30 per cent from 40 per cent and increased the minimum holding period for this relief from three to five years.

The February 2007 edition of the Tax Efficient Review’s VCT Key Facts Guide observes there are fewer generalist trusts raising money this year. This means those raising money this year may face less competition, although the benefit of this is debatable given the anticipated smaller market.

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