Standard Chartered 7.375 Pref (STAB) & Standard Chartered 8.25 Pref (STAC)

[hostye]

Standard Chartered 7.375 Pref (STAB) & Standard Chartered 8.25 Pref. (STAC)

I have been looking at the wording in the listing documents, articles, AGM, etc of these two Standard Chartered preference shares

Seems to me both STAB and STAC are well protected from any reduction of capital at par as the wording here states this is not possible on a “reduction" of capital "On a winding up or other return of capital (other than a redemption, reduction or purchase by the Company of any of its issued shares)"
I have copied & pasted the relevant pages from the listing particulars below (these are taken from 7.375 pref document but 8.25 pref are similar too)

I would be interested to know if anyone has opinions on this?
Perhaps I have missed something but I think not. As always, do your own research too!

Both STAB and STAC are currently yielding around 6.9% on the offer (after adjusting for accrued).

Also, In the May 2024 AGM the company were Authorised to buy prefs in market at up to 25% above market price (See pages 16 & 17 in link below for more detail). Seems a more generous premium than some other prefs (Aviva’s is authorised up to 5% above market price for instance)

https://av.sc.com/corp-en/nr/content/docs/SC-PLC-Notice-of-AGM-2024-and-Notice-of-Class-Meeting.pdf

---------------------------------------------------------------------------------

Copied form the LISTING PARTICULARS - Standard Chartered PLC - 100,000,000 7 3/8 per cent. Non-Cumulative Irredeemable Preference Shares

Page 27 - Capital
On a winding up or other return of capital (other than a redemption, reduction or purchase by the Company of any of its issued shares), the assets of the Company available to shareholders shall be applied, in priority to any payment to the holders of Ordinary Shares and in priority to or pari passu with the holders of any other class of shares in issue (other than shares which by their terms rank in priority to the Preference Shares in a winding-up or other return of capital), in payment to the holders of the Preference Shares of a sum equal to the aggregate of:

(i) an amount equal to the dividends accrued thereon for the then current dividend period to the date of the commencement of the winding up or other return of capital, but only to the extent that any such amount was, or would have been, payable as a cash dividend;

(ii) an amount equal to any dividend thereon which has been resolved to be paid on or after the date of commencement of the winding-up or other return of capital but which is payable in respect of a dividend period ending on or before such date; and

(iii) the amount paid up or credited as paid up in respect of the nominal value of such Preference Shares.


Page 76 - Capital
The preference shares are to carry the right on a winding up of the Company or other return of capital (but not, unless otherwise provided by their terms of issue, on a redemption, reduction or purchase by the Company of any of its share capital) in priority to any payment to the holders of Ordinary Shares to the repayment of the nominal capital paid up on the preference shares together with any premium determined by the Directors before allotment (together the "liquidation entitlement"), and to an amount equal to the dividend for the then current dividend period accrued to the date of commencement of the winding up.

[88V8]

...Seems to me both STAB and STAC are well protected from any reduction of capital at par as the wording here states this is not possible on a “reduction" of capital "On a winding up or other return of capital (other than a redemption, reduction or purchase by the Company of any of its issued shares)"...

Also, In the May 2024 AGM the company were Authorised to buy prefs in market at up to 25% above market price (See pages 16 & 17 in link below for more detail). Seems a more generous premium than some other prefs (Aviva’s is authorised up to 5% above market price for instance)...

Page 27 - Capital
On a winding up or other return of capital (other than a redemption, reduction or purchase by the Company of any of its issued shares), the assets of the Company available to shareholders shall be applied, in priority to any payment to the holders of Ordinary Shares and in priority to or pari passu with the holders of any other class of shares in issue (other than shares which by their terms rank in priority to the Preference Shares in a winding-up or other return of capital)...

Page 76 - Capital
The preference shares are to carry the right on a winding up of the Company or other return of capital (but not, unless otherwise provided by their terms of issue, on a redemption, reduction or purchase by the Company of any of its share capital) in priority ...

Mmm, interesting point about Aviva being limited to a 5% premium. Out of step with current expectations. The need to change that by resolution will give investors a heads-up that they plan on tendering.

Regards Standard Chartered, I read it the other way round. What is says is that the Prefs do not have preference in a 'redemption, reduction or purchase by the Company of any of its issued shares'.

Other more learned opinions are awaited.

V8

[GoSeigen]

OP, please could we have links to the listing particulars that are referenced in your post.

Thank you.

GS

[hostye]

Sure here you go. Link to issuing particulars

I had been looking at the 7.375 more closely but belive 8.25 have similar wording

https://www.sc.com/en/investors/credit-ratings-fixed-income/capital-securities-in-issue/

[GoSeigen]

Here is a searchable copy of Standard Chartered PLC's latest Articles of Association.

I find very little said about reduction of capital. So I think the conclusion for me is that the statutory requirements apply (special resolution required).


Regarding the quoted exclusion "(other than a redemption, reduction or purchase by the Company of any of its issued shares)": these three particular items are excluded from the clause for a very specific reason: they are the only three legal ways under Company law that a public company can purchase its shares in the normal course of its operations. So the clause in my reading is applying to any other circumstance, specifically a winding up (self-explanatory) and other returns of capital. Now I'm not sure what the latter would refer to but would guess that it is talking about certain returns of capital affecting other classes of share, which would according to the clause trigger a preferential/prior payment of the specified amounts to preference shareholders. The intention presumably is to prevent capital going out the door and leaving the preference shareholders unable to be paid. Of course the right to prior payment is one of the defining attributes of preference shares.


EDIT: I have to say it seems to me that the company is actually authorised to reduce its capital without making prior payment to the preference shareholders -- which is the first set of terms where I have seen this.

The original articles stated a capital reduction required passing of a special resolution. I didn't find that in the later articles, i presume the statutory requirements apply as stated above. I don't see any right of preference shareholders to vote on such a resolution (please correct this if I'm wrong) and I would guess that by now ordinary shareholders far outnumber preference shareholders in any case.

IANAL and hopefully someone more versed in corporate actions can confirm or correct the above.


GS

[hostye]

EDIT: I have to say it seems to me that the company is actually authorised to reduce its capital without making prior payment to the preference shareholders


GS

Appreciate the opinions. Thanks.

Just a question on the comment above.

Is this not what happens anyway when a company buys back its own ordinary shares as many have also done (such as Aviva, Lloyds, Santander, etc).
Surely any ordinary share buybacks reduce the capital without making prior payment to preference shareholders?

Thanks

[GoSeigen]

EDIT: I have to say it seems to me that the company is actually authorised to reduce its capital without making prior payment to the preference shareholders


GS

Appreciate the opinions. Thanks.

Just a question on the comment above.

Is this not what happens anyway when a company buys back its own ordinary shares as many have also done (such as Aviva, Lloyds, Santander, etc).
Surely any ordinary share buybacks reduce the capital without making prior payment to preference shareholders?

Thanks

Not exactly, no. It's been a while since I studied the Company Act but from memory, purchases (aka buybacks) have to be made from distributable funds, they have to be authorised by a shareholder resolution. A Chapter 10 Reduction of Capital on the other hand can be done any way the company sees fit, but must be authorised by a special resolution and by the High Court (and must leave at least one non-redeemable share in issue). The effect on the amount of share capital outstanding depends exactly how the buyback and reduction of capital respectively are carried out (though you'd be right to point out that companies can only hold a limited amount of shares bought back: above that limit they have to be cancelled IIRC).

Regarding their respective effect on preference shares, that is contractual (company law is silent on prefs per se, many companies do not have them!): it depends on what has been agreed in the company's Articles and other relevant contracts. I'm not aware of any preference share terms that prevent purchases before the prefs have been repaid. That would be a severe restriction on the flexibility of the company! However it is fairly common contractually for Reduction of Capital to be subject to prior repayment of preference shares and/or a class vote. For example Nat West Bank PLC Articles state:

"On a return of capital on a winding up or otherwise (but not [...] on a redemption or purchase by the Bank of shares of any class), the New Preference Shares shall rank parri passu inter se and [...] in priority to any other share capital of the bank. On such a return of capital on a winding up or otherwise, each New Preference Share shall, out of the assets of the Bank available for distribution amongst the members, carry the right to repayment of the amount paid up [etc]" [my elipses and bold]

Note the omission of the reference to Reduction of Capital in the exclusion in bold, in contrast to the STAB/STAC terms that were quoted in the OP. IME Nat West's variant or its equivalent is more common, i.e. Reductions of Capital usually push prior repayment of preference shares.

Again, IANAL, please do not rely on the above but check for yourself...



GS

[hostye]

Isn't this Variation of rights clause below a "Class vote" for the Sterling Pref holders?
Im no lawyer either so not sure if this clause would cover a reduction of capital!

(From Page 76 of the Listing particulars of the STAB 7.375 pref)

(vii) Variation of rights
The rights attached to any series of preference shares are to be capable of being varied or abrogated with the written consent of holders of three-quarters in nominal value of such shares or with the sanction of an extraordinary resolution passed at a class meeting of holders of such shares.


Listing particulars can be found here - (on the webpage just tab accoss to preference shares)
https://www.sc.com/en/investors/credit- ... -in-issue/

[GoSeigen]

Isn't this Variation of rights clause below a "Class vote" for the Sterling Pref holders?
Im no lawyer either so not sure if this clause would cover a reduction of capital!

(From Page 76 of the Listing particulars of the STAB 7.375 pref)

(vii) Variation of rights
The rights attached to any series of preference shares are to be capable of being varied or abrogated with the written consent of holders of three-quarters in nominal value of such shares or with the sanction of an extraordinary resolution passed at a class meeting of holders of such shares.


Listing particulars can be found here - (on the webpage just tab accoss to preference shares)
https://www.sc.com/en/investors/credit- ... -in-issue/

It's settled UK case law that the right of preference shareholders to prior payment requires them to be paid first in a capital reduction and is not a variation of their rights.

People mostly seem to object to prior payment when the market has valued their shares above par. Funny that, isn't it?


GS

[hostye]

It's settled UK case law that the right of preference shareholders to prior payment requires them to be paid first in a capital reduction and is not a variation of their rights.

People mostly seem to object to prior payment when the market has valued their shares above par. Funny that, isn't it?


GS

Thanks. Out of interest, would you know when and which company was involved in this settled UK case law?

[GoSeigen]

Re Hunting Plc [2005] 2 BCLC 211

On an application by the company for confirmation by the court of a resolution to reduce its issued share capital by the cancellation of convertible preference shares, preference shareholders argued that the scheme of reduction was unfair to them. Held: The reduction was approved. A company is entitled to reduce its capital by cancelling preference shares to replace the preference share capital with cheaper capital. The reduction was not unfair to the preference shareholders because they knew when they acquired their shares they were assuming the risk of being paid off in full.


From: Unlocking Company Law by Susan McLaughlin

EDIT: Also Saltdean:


In Re Saltdean Estate Co Ltd [1968] 1 WLR 1844, Buckley J confirmed that prior payment of preference shares on a reduction of capital is part of the bargain a preference shareholder enters into:

JUDGMENT



‘The liability to prior repayment on a reduction of capital, corresponding to their right to prior return of capital in a winding up … is part of the bargain between the shareholders and forms an integral part of the definition or delimitation of the bundle of rights which make up a preference share. Giving effect to it does not involve the variation or abrogation of any right attached to such a share.’

GS