M&G Credit Income (MGCI) has announced that it intends to introduce a “zero discount” policy to manage the discount or premium to NAV at which its ordinary shares trade. Winterflood Securities is to implement the zero discount policy on its behalf, with any ordinary shares purchased to be held in treasury.
Background to the zero discount policy
MGCI’s Board says that it has been concerned by the trust’s discount to NAV over the last eight months and, where there has been appropriate opportunity to do so, has undertaken a number of share buybacks in an effort to reduce the discount at which its Ordinary Shares have traded. More recently, MGCI’s investment manager has held a number of meetings with both existing and potential investors that, coupled with a more positive market backdrop more generally, have led to a narrowing of the discount. However, more broadly, the board considers that the volatility in the price of the Ordinary Shares has not reflected the stability and low volatility of the underlying NAV.
The board says that the zero discount policy is being adopted because it believes that it is important for shareholders to be able to benefit appropriately from the Company’s investment objective which is to generate a regular and attractive level of income with low asset value volatility. MGCI will therefore seek to ensure that its shares trade at close to NAV in normal market conditions through a combination of share buybacks, the issuance of new shares, or the resale of shares held in treasury, where demand exceeds supply. The board says that further issuance would allow the Company to take advantage of opportunities in the private debt markets as they arise, as well as increase the size of the trust, which should reduce the ongoing charges figure and improve the liquidity of the ordinary shares.
Winterflood Securities to implement MGCI’s zero discount policy
MGCI’s board has given instructions to Winterflood Securities Limited to implement the zero discount policy on its behalf, with any ordinary shares purchased to be held in treasury. These instructions are valid until cancelled, suspended or amended and have been put in place to ensure that Ordinary Share repurchases may continue, if required, even when the Company is in possession of inside information, including, for these purposes, during the short period prior to the announcement of the Company’s NAV per Ordinary Share each month. The Board says that it shall not cancel, suspend or amend these instructions at any time when it is in possession of inside information.
[QD comment: In common with many of its peers, MGCI has moved from trading at a marked premium to trading at noticeable discount (typically between 5-10% of NAV) during the last eight months. The discount has narrowed to around 4-5% recently, but the new mechanism should provide investors with the certainty that they should be able to enter and exit the trust at close to NAV, and so should drive it nearer to par as the policy is implemented. The fund is a reasonable size, but would benefit from being bigger. Hopefully the certainty offered by the new zero discount policy will allow the fund to grow, improving liquidity and putting downward pressure on the ongoing charges ratio, to the benefit of all shareholders.]