The Lemon Fool

I have received notice via AJ Bell and am invited to vote (as a pref holder) on the matter in the upcoming AGM. I haven't read the circular yet so not fully appraised of the details.

Well, I've read it and it seems to be saying that no shareholder interest will be affected ..... any views? Anyone voting?

bruncher wrote:Well, I've read it and it seems to be saying that no shareholder interest will be affected ..... any views? Anyone voting?

I do not hold Aviva but they are just swapping reserves in the Share Premium Account and one other account (both are called capital reserves which means that they cannot be used to fund dividends or share buybacks) for distributable reserves account from which dividends are paid and share buybacks are made. It has no effect on shareholders and is a bit of a non event.

Dod

Dod101 wrote:

bruncher wrote:Well, I've read it and it seems to be saying that no shareholder interest will be affected ..... any views? Anyone voting?

I do not hold Aviva but they are just swapping reserves in the Share Premium Account and one other account (both are called capital reserves which means that they cannot be used to fund dividends or share buybacks) for distributable reserves account from which dividends are paid and share buybacks are made. It has no effect on shareholders and is a bit of a non event.

Dod

If I've understood the above, does that imply that those capital reserves may be "spent" in future, thus reducing the capital safety net? Well, I assume the regulators would have to approve - or at least might be interested. Presumably, Aviva has to hold reserves according to some agree formula, but this will not break any limits because they have an excess of capital reserves.

Arb.

Dod101 wrote:

bruncher wrote:Well, I've read it and it seems to be saying that no shareholder interest will be affected ..... any views? Anyone voting?

I do not hold Aviva but they are just swapping reserves in the Share Premium Account and one other account (both are called capital reserves which means that they cannot be used to fund dividends or share buybacks) for distributable reserves account from which dividends are paid and share buybacks are made. It has no effect on shareholders and is a bit of a non event.

Dod

How does shifting from "not available to shareholders" to "available to shareholders" make it "no effect on shareholders"? Surely it is literally the opposite?

dealtn wrote:

Dod101 wrote:
I do not hold Aviva but they are just swapping reserves in the Share Premium Account and one other account (both are called capital reserves which means that they cannot be used to fund dividends or share buybacks) for distributable reserves account from which dividends are paid and share buybacks are made. It has no effect on shareholders and is a bit of a non event.

Dod

How does shifting from "not available to shareholders" to "available to shareholders" make it "no effect on shareholders"? Surely it is literally the opposite?

I accept what you say but I was really thinking of this in terms of Arb's comment. If they make the changes this afternoon , the effect on shareholders in practice is Nil. As I am sure you know, the changes will just give the management more flexibility to use surplus funds for share buybacks or to distribute as dividends. These funds are quite separate from and surplus to the technical reserves that they are required to hold against their liabilities as an insurer. It is not just they who say that; they have to be approved by a Court (for what that is worth)

Dod

Arborbridge wrote:

Dod101 wrote:
I do not hold Aviva but they are just swapping reserves in the Share Premium Account and one other account (both are called capital reserves which means that they cannot be used to fund dividends or share buybacks) for distributable reserves account from which dividends are paid and share buybacks are made. It has no effect on shareholders and is a bit of a non event.

Dod

If I've understood the above, does that imply that those capital reserves may be "spent" in future, thus reducing the capital safety net? Well, I assume the regulators would have to approve - or at least might be interested. Presumably, Aviva has to hold reserves according to some agree formula, but this will not break any limits because they have an excess of capital reserves.

Arb.

Yes these reserves are quite separate from the technical reserves that they are required to hold as an insurer, and are I think part of their working capital used for running the business. I guess as a final resort they could be used to prop up the insurance liabilities but Aviva, like all insurers these days, is well capitalised and hold very large technical reserves which cannot be 'raided'.

Reducing what you call the capital safety net has to be approved by a Court. They are just taking a number on their Balance Sheet and changing its designation from a capital item (which cannot be spent) to a distributable item (which can)

Dod

So, not the type of event that worries a Pref holder.... phew....

V8

88V8 wrote:So, not the type of event that worries a Pref holder.... phew....

V8

?

It allows capital to walk out the door. I think that is an issue for preference shareholders.


GS

GoSeigen wrote:

88V8 wrote:So, not the type of event that worries a Pref holder.... phew....

V8

?

It allows capital to walk out the door. I think that is an issue for preference shareholders.


GS

IF it is an issue for the Pref shareholders it is for the Ordinary shareholders as well. The action has to be sanctioned by the Court whatever that is worth but in any case shareholders can stop for instance share buybacks by voting against the usual resolution at an AGM to give the Directors limited powers to be buyback shares.

Dod

Dod101 wrote:

GoSeigen wrote:
?

It allows capital to walk out the door. I think that is an issue for preference shareholders.


GS

IF it is an issue for the Pref shareholders it is for the Ordinary shareholders as well. The action has to be sanctioned by the Court whatever that is worth but in any case shareholders can stop for instance share buybacks by voting against the usual resolution at an AGM to give the Directors limited powers to be buyback shares.

Dod

It would be going straight into the ord shareholders' pockets as dividends or buybacks so how could that be an issue for them?? Perhaps typo and you meant bondholders?

GS

No, I did not mean bond holders. I think it is a bit of a non issue. The Board proposes that the Share Premium account should be converted from capital to distributable reserves. The Share Premium Account arises when a company issues new shares and is the difference between the par value of the shares and the issue price. Hence it is capital. That is why they talk of a Capital Reduction. They say they do not need or may not need that much capital and they want the flexibility to reduce it by share buybacks or distributing it as dividends.

If shareholders are unhappy they can vote against it but on the whole it is best I think to leave the Bosrd to get on with it. That is why shareholders appoint them in the first place.

Dod

Dod101 wrote:No, I did not mean bond holders. I think it is a bit of a non issue. The Board proposes that the Share Premium account should be converted from capital to distributable reserves. The Share Premium Account arises when a company issues new shares and is the difference between the par value of the shares and the issue price. Hence it is capital. That is why they talk of a Capital Reduction. They say they do not need or may not need that much capital and they want the flexibility to reduce it by share buybacks or distributing it as dividends.

If shareholders are unhappy they can vote against it but on the whole it is best I think to leave the Bosrd to get on with it. That is why shareholders appoint them in the first place.

I know what they say, "at this time we don't intend" yada yada, but you wouldn't carry out the capital reduction if it were of no purpose. I suggest the primary reason they are doing so is because they want to return cash to shareholders ("but not right now") but cannot do so via a return of capital because -- well, we all know why.

Again, why would shareholders be unhappy. Do you have any evidence that they are? It's my interpretation that this is being done for the benefit of shareholders.

If you're responding to something I have written then all I've said is I think preference shareholders (and creditors) have cause for concern. I doubt pref shareholders will do anything though (beyond voting no) because 1. they are hoist by their own petard and 2. woolly company denials and 3. "my shares are perpetual and will only be torn from my cold dead hands".

GS

GoSeigen wrote:

Dod101 wrote:No, I did not mean bond holders. I think it is a bit of a non issue. The Board proposes that the Share Premium account should be converted from capital to distributable reserves. The Share Premium Account arises when a company issues new shares and is the difference between the par value of the shares and the issue price. Hence it is capital. That is why they talk of a Capital Reduction. They say they do not need or may not need that much capital and they want the flexibility to reduce it by share buybacks or distributing it as dividends.

If shareholders are unhappy they can vote against it but on the whole it is best I think to leave the Bosrd to get on with it. That is why shareholders appoint them in the first place.

I know what they say, "at this time we don't intend" yada yada, but you wouldn't carry out the capital reduction if it were of no purpose. I suggest the primary reason they are doing so is because they want to return cash to shareholders ("but not right now") but cannot do so via a return of capital because -- well, we all know why.

Again, why would shareholders be unhappy. Do you have any evidence that they are? It's my interpretation that this is being done for the benefit of shareholders.

If you're responding to something I have written then all I've said is I think preference shareholders (and creditors) have cause for concern. I doubt pref shareholders will do anything though (beyond voting no) because 1. they are hoist by their own petard and 2. woolly company denials and 3. "my shares are perpetual and will only be torn from my cold dead hands".

GS

I have no issue with anyof this. All I was doing was trying to explain what the capital reduction meant, and its possible implications. I do not hold Aviva and have nothing to say beyond what I have said.

Dod

Dod101 wrote:
I have no issue with anyof this. All I was doing was trying to explain what the capital reduction meant, and its possible implications. I do not hold Aviva and have nothing to say beyond what I have said.

Fair enough Dod, I'm kind of putting down a marker here, because it will be interesting to look back in a few years time if the preference shares are trading below par and holders are complaining that they should at least have the chance of getting their par value and "how come ordinary shareholders have been able to take billions in dividends ahead of the interests of the more senior prefs?"!

GS

I am , as a pref holder , suspicious of the purpose/motive for this action and will vote against .

This move should not be of much concern to either ordinary or preference shareholders.

This was the statement issued by Aviva in 2018 about their preference shares.

“As a result Aviva has listened. Aviva announces that it has decided to take no action to cancel its preference shares. Under current regulation the preference shares will no longer count as regulatory capital in 2026. Aviva will work towards obtaining regulatory approval for the preference shares, or a suitable substitute, to qualify as capital from 2026 onwards. If as we approach 2026 Aviva needs to reconsider this position, it will do so after taking into account the fair market value of the preference shares at that time.”

Tara wrote:This move should not be of much concern to either ordinary or preference shareholders.
This was the statement issued by Aviva in 2018 about their preference shares.
“As a result Aviva has listened. Aviva announces that it has decided to take no action to cancel its preference shares. Under current regulation the preference shares will no longer count as regulatory capital in 2026. Aviva will work towards obtaining regulatory approval for the preference shares, or a suitable substitute, to qualify as capital from 2026 onwards. If as we approach 2026 Aviva needs to reconsider this position, it will do so after taking into account the fair market value of the preference shares at that time.”

Yes, that's what they said...

V8

If as we approach 2026 Aviva needs to reconsider this position

.........

AJ Bell is facilitating voting for me, but not iWeb.