Within its latest full-year figures, Aviva (AV.), floated the possibility that it could cancel £450m in high-yielding preference shares at par value through a reduction of capital – a prospect that has some institutional and minority shareholders up in arms.
It's apparent some investors had considered the non-redeemable preference shares in question, permanent securities. However, a spokesman for Aviva told the IC that the issuer’s rights relating to cancellation were contained in the documentation originally sent out to preference holders. The prospectus stated that the shares weren’t redeemable, but that’s not the same thing as saying they can’t be cancelled. Mark Taber of Fixed Income Investments is agitating on behalf of the preference holders who could see their incomes hit. He claims that there was no previous public reference to the rights to cancellation – though if the paperwork’s in order, it may well be a moot point. The FCA said it was making active enquiries into the matter. "We are seeking to understand the basis upon which the firm is taking this action and we are considering whether they have put sufficient information into the public domain," a spokesperson said.
Unsurprisingly, the Aviva announcement triggered a sell-off across the wider market, with prices for both Aviva's 8.75 per cent and 8.375 per cent securities down by nearly 30 per cent. The news also prompted the Ecclesiastical Insurance Office to reassure investors that they have no plans to cancel their preference securities.
Aviva told us that the possible cancellation is part of a process to balance the interests of ordinary and preferred shareholders, but Mr Taber fears that ordinary shareholders could be used to railroad any decision, particularly as it would save around £38m in coupon payments. However, there are holders of both preference and ordinary stock in Aviva, which could conceivably sway the issue (along with any bad publicity).
