Aviva (AV.) has given way to investor pressure and scrapped the option of cancelling £450m in preference shares. The insurer floated the idea of cancelling the ‘irredeemable’ shares at par value in its full-year results, invoking the ire of institutional and retail investors and wiping almost a third off the value of the preference shares in just one day.
Aviva chief executive Mark Wilson said the board had a duty to consider not just the financial implications of its actions. “We must consider the impact to Aviva’s wider reputation. I hope our decision today goes some way to restoring that trust,” he said.
Aviva is trying to obtain regulatory approval for the preference shares – or a suitable substitute – to qualify as capital from 2026 onwards. However, even if the insurer revisits a cancellation, it will consider the fair market value of the preference shares at the time, Mr Wilson said.
The high-yielding shares had typically traded at a premium since issue 25 years ago, seemingly priced on the assumption that they could not be cancelled at par value. Many investors argued the possibility of a termination had not been clearly communicated, but Aviva pointed to company law when explaining its right to do so.
The Financial Conduct Authority said it was making enquiries into the basis upon which the insurer was considering cancelling the shares and whether it had put sufficient information into the public domain.
Institutional shareholders including M&G Prudential, Invesco and BlackRock have said Aviva – as well as other preference share issuers – should modernise their articles of association to better reflect their intentions, and the true irredeemable nature of the instruments as set out in the initial offering documentation and subsequent investor communications.
Despite the cancellation, recent events have affected the insurer’s reputation with some investors. The episode may also have dented confidence in the preference share market.
