Keystone tweaks gearing policy

Volatility hinders returns at Keystone

Following recent market turbulence, which has pushed Keystone’s gearing up, its board has announced that it has decided to amend its gearing policy “with the intention of safeguarding shareholder value as far as possible”. Under the new policy, the portfolio manager may not make net purchases at times when net borrowings exceed 15% of net assets and, if movements in the NAV cause that ratio to increase above 20%, must take action to reduce the gearing ratio.

Background to the changes

KIT’s Board says that it has been monitoring closely the effect on KIT’s balance sheet of the extremely volatile market conditions that have been seen recently. Reading between the lines, disposals have been made to reduce gearing and keep it within policy limits. However, there is a balance to be struck with regards to individual stock valuations, liquidity and the balance of the portfolio. At close of business on 25 March 2020, the Company’s balance sheet showed gearing of 13.5%.

The board says that the change of policy has been brought about by a renegotiation of covenants under KIT’s borrowing facility, which has been reduced to £40 million (previously £45 million). This has a covenant for maximum indebtedness, which has been increased to 25% of net assets from 20%, and total assets must not fall below £120 million (previously £150 million).

Comments from Karen Brade (chairman of Keystone)

“The Board is pleased to be able to announce these changes to help our portfolio manager navigate these uncharted waters.  We are grateful to our lending bank for their assistance in these challenging times.”

Comments from James Goldstone (portfolio manager)

“The last three weeks have seen volatility in markets and indiscriminate selling of equities of historic proportions. Whilst there remains considerable uncertainty, concerted action is being taken to mitigate the impact of the Covid-19 pandemic on corporate earnings and balance sheets. Significant value has now emerged in many shares and attractive investment opportunities exist for those with a long-term horizon. I would like to thank the Board for the steps they have taken and the flexibility that this will confer in turbulent times.”

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