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Zeros, warrants and subscription shares

Zeros, warrants and subscription shares

Each month we publish our monthly roundup of news, performance and discount moves in the investment company sector. This section covers zeros, warrants and subscription shares. We’ll update the valuation sheet here at least monthly. Bear in mind that the net asset value numbers that go into calculating the final asset cover may be out of date for funds that invest in assets such as private equity and property.


Comments, New issues and maturities

Shareholders in Geiger Counter have the right to subscribe for one new ordinary share for every five ordinary shares held in the company on 30 April each year. In its first exercise, it has received applications from from existing shareholders to subscribe for 17,376,023 new ordinary shares at a price of 37.84p per share. As Geiger Counter has announced previously, there is a cap of €8m on the value of ordinary shares that can be issued at the subscription price, and so each successful applicant has had the number of shares they have applied for scaled back to approximately 76.67% of the number applied for. A total of 13,322,132 ordinary shares will therefore be issued to the successful applicants on the basis of one new ordinary share for every five existing ordinary shares registered in the name of the successful applicants on the record date (at 6pm on 3 May 2022).

The second subscription rights price will be 51.52p (based on the NAV on 3 May 2022). The exercise date for the second subscription right is expected 2 May 2023.

EJF Investments (EJFI) has announced the results of its rollover offer to convert existing 2022 ZDP shares into new 2025 ZDP shares. The rollover offer was announced on 4 April 2022, in conjunction with a placing programme for up to 70m new ordinary shares and/or new C shares and up to 25m new 2025 placing ZDP shares. EFJI says that valid elections were received from 2022 ZDP shareholders in respect of a total of 10,021,292 2022 ZDP Shares (representing approximately 66.8 per cent. of the total number of 2022 ZDP Shares in issue). Subject to the satisfaction of the conditions of the Rollover Offer, 10,996,857 new 2025 rollover ZDP shares will be issued, on the basis of each 2022 ZDP share converting into 1.09735 new 2025 rollover ZDP shares. Application will be made for the new 2025 rollover ZDP shares to be admitted to trading on the Specialist Fund Segment of the London Stock Exchange. Dealings are expected to commence at 8.00am on 10 May 2022.

Earlier updates are available here


Zero dividend preference shares or ZDPs are shares that will be redeemed at a fixed price at some defined point in the future (provided that sufficient assets are available). Their entitlement to the assets of the company rises in a straight line between their entitlement on issue and their redemption value. They are not entitled to receive dividends. They will usually get paid out before the ordinary shares on a winding up.

warrant is an instrument that gives the holder a right but not the obligation to buy ordinary shares at a pre-determined price (the strike price or exercise price) on a given date or within a range of dates.

Subscription shares are identical to warrants but they are eligible for inclusion in an ISA while a warrant is not.

The ZDP cover ratio / Zero Dividend Preference share cover ratio is an indicator of the likelihood of a split capital company being able to repay its zero dividend preference shares (ZDPs) when they fall due. The method of calculation varies from firm to firm but, for the purposes of producing our monthly sheet on zeros we have adopted the following method.

  1. take the gross assets of the company (based on the latest available net asset value including accrued income) and adding back bank debt
  2. deduct bank debt (unless it specifically ranks below the zeros – but this is unlikely)
  3. deduct the final capital entitlement of any prior ranking zero dividend preference share issues
  4. divide the resultant number by the final capital entitlement of the ZDP issue for which you want to calculate the ZDP cover ratio

Some other measures of ZDP cover try to adjust the calculation for management fees, interest on debt and estimated wind up costs. We think this gives a spurious accuracy (since it is hard to forecast some of these expenses) to what is really only just a rough guide to whether the zero will easily be repaid out of available assets when it falls due.

Gross redemption yield or GRY is a measure of the rate of return offered by an investment up until the date it matures. It is usually expressed as an annualised percentage – a bit like an interest rate. NB, as ZFPs near maturity, annualised GRYs can get a bit distorted – also dealing costs (which our sheets do not factor in as they vary) become more of an issue.

There are two discount/premium columns in the valuation sheet. The first “price/exercise (discount)/premium” is looking at how far in or out of the money the warrants or subscription shares are. The second, additional column “price+warrant or sub share price / exercise discount/premium” is looking at whether it make sense to buy these warrants or the subscription shares at their current price.

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