Chelverton UK Dividend Trust (SDV) has announced that the proposed placing of new zero dividend preference shares (ZDPs) in 2031 ZDPCo will not proceed due to insufficient demand amid continued market volatility. As a result, the previously proposed Scheme of Reconstruction has also been cancelled.
Despite some investor support, the challenging market backdrop has led the directors to conclude that conditions are not currently suitable for a successful placing. Consequently, 2031 ZDP shares will not be admitted to trading, and existing ZDP shareholders who had elected to roll over into the new structure will instead receive a cash payment based on their final capital entitlement.
The liquidation of SDV 2025 ZDP PLC will now proceed, with the second resolution to appoint liquidators to be put to shareholders at the second meeting on 28 April 2025. The listing of the existing ZDPs will be cancelled on 30 April, and cash payments will be made via CREST on 7 May, with cheque despatches expected during the week commencing 12 May. The total capital entitlement to be paid out to existing ZDP shareholders stands at £19.3m. The company is actively exploring alternative financing options and will provide a further update in due course.
[QD comment MR: The decision to cancel the ZDP placing and abandon the proposed scheme of reconstruction underscores the continued difficulty in raising capital in the current market environment, particularly for small trusts such as SDV. ZDPs have a fixed life and, to a certain extent it has been unfortunate with its timing of the expiration of its 2025 ZDP, which has led to the attempt to rollover the capital. This has come at a time where there is heightened volatility and uncertainty in markets following the announcement of Trump’s tariffs and, in tandem with this, there is also higher uncertainty in the inflation and interest rate outlook, which is particularly problematic when trying to conduct a fresh ZDP issue.
Unfortunately, the abandonment of the 2031 ZDP issue puts the trust’s gearing structure into flux, and quite possibly spells the end of SDV’s ZDPs altogether, which have long been a feature of its capital structure. Looking ahead, the trust will need to consider alternative financing arrangements to replace the structural gearing provided by the ZDPs and it will be interesting to see whether this prompts a rethink of the trust’s long-term strategy or capital structure more broadly. At the time of writing, the market cap of SDV’s ordinary shares is just shy of £30m and, reflecting its small size, its ongoing charges ratio is 2.73%. It is difficult to see how this is sustainable in a world that seems to want bigger funds with greater liquidity and economies of scale.]
