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Invesco considers gearing on new split cap

Invesco Perpetual is considering adding tactical gearing to its upcoming Dual Return split capital trust, whose launch was postponed in December.

Invesco Perpetual sales director of specialist funds Andrew Watkins is revisting several investors who showed an interest in the split cap, before it had to postpone its December launch. This was because they were unable to guarantee the delivery of a signed-off prospectus from the UK Listing Authority on time.
 
Watkins says: “Conditions have changed a bit since we last spoke to these investors, with the market up 10 per cent and yields down by the same amount, so I need to establish if they are still likely to support a new issue.”
 
In the original proposals the trust, to be managed by Martin Walker, was going to contain no bank debt. However given the change in market conditions, Watkins says after allowing running expenses to be charged to income and an amount to be transferred to revenue reserves, the dividend payable to the income shareholders would receive would be nearer to 6.3p, down from the 7p anticipated.
 
Watkins says: “This is why I will raise the issue of short-term, tactical gearing. The company could borrow on fully flexible, variable rate, overdraft terms at 100 basis points over the base rate so, at the moment, 1.5 per cent total cost.
 
He adds: “It would makes sense to do so, at least for the shorter term while interest costs are so low, partly to benefit capital growth and also to give the yield a bit of a boost.”
 
Watkins says he remains open-minded that some investors may not want gearing in the fund and would prefer the original ungeared version.

“We should know if we are to proceed, and with which option, by the first week in February.”

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