Completion of Aviva’s programme of mass divestments from the investment trust sector may be hampered by the lack of simple solutions for its remaining stakes, analysts have suggested.
Aviva has sold sizeable stakes in a number of investment trusts over the past year, and deals announced in recent weeks mean that just two trusts have yet to reveal plans to remove the insurer from their shareholder registers.
Analysts have said those two companies – the £164m Majedie Investment Trust and the £276m Brunner Investment Trust – are likely to be working on ways to offer Aviva an exit, but warned the process may take longer than expected.
Panmure Gordon investment funds analyst Charles Murphy said: “The reason why Majedie and Brunner are the ones left is because they are the trickiest [to sell].”
Aviva inherited the positions as a result of its 2015 acquisition of Friends Life and began selling in 2016. Most of its divestments have been relatively orderly, the largest being Witan’s purchase of the insurer’s £240m stake in the trust.
Deals have continued in 2017. Earlier this month Scottish Investment Trust (SIT) said it would buy Aviva’s entire 11.4 per cent stake, worth £89m, six days on from the London & St Lawrence trust’s announcement it would wind up and allow the insurer to realise its 20 per cent position.
However, the final sales may be more complex. Charles Cade, head of investment companies research at Numis Securities, noted the Majedie trust had a large proportion of its assets, currently 27 per cent, in the unlisted Majedie Asset Management. The position is only valued on a sporadic basis.
Mr Cade said Majedie, in which Aviva has a 13 per cent stake, would be “reluctant to shrink” in the same way that SIT will, as the proportion of its assets held in the unlisted position would become too large.
“They need to time it when there is a fresh valuation [for the unquoted company],” Mr Cade said. “I expect them to be working on that now.”
Majedie is likely to adopt the strategy used by Witan, according to Mr Cade, whereby the trust will purchase Aviva’s stake at an agreed price. It would then look for new buyers at the same price or hold the shares in treasury and issue them if the trust moves to a premium.
However, Aviva’s 18.9 per cent stake in Brunner Investment Trust may be even harder to offload owing to the presence of expensive debt distorting the trust’s value.
Brunner has two debentures – long-term debt facilities – charging high interest rates that are set to mature in 2018 and 2023, and Mr Murphy said these could hinder any attempt from Aviva to offload its stake.
He said the debentures would likely mean Brunner will look to pull off some sort of merger deal, akin to that agreed between the Aberdeen UK Tracker and BlackRock Income Strategies trusts, which “would create enough scale to deal with [the debenture] and create a cash exit [for Aviva]”.