Lloyds cash-call refuseniks to get £300m after share sale

Published on Monday 8 June 2009 21:43

LLOYDS will distribute almost £300 million to shareholders who did not take up its recent rights issue after the rejected shares were sold at a premium yesterday.

The banking giant, formed after the takeover of HBOS by Lloyds, yesterday completed its move to raise 4 billion to redeem preference shares issued to the government.

Freeing itself of the preference shares – issued as part of the rescue package during last autumn's financial crisis – relieves Lloyds of the burden of a 480 million-a-year repayment to the Treasury.

It also means that the "super-bank" can pay dividends to shareholders in the future.

Although the rights issue was hailed as a success, 13 per cent of the shares on offer – more than 1.3 billion – were not taken up by existing investors, despite a hefty discount.

Lloyds offered the shares at 38.43p. Yesterday Lloyds advisers Citigroup and JP Morgan Cazenove sold the remaining shares at 60p, a premium of 56 per cent.

Because shareholders who did not to take up the shares still hold rights to them, profits will now be returned to them.

In most recent banking rights issues, the market value of shares has been below the offer price and few shareholders have taken up the offer.

An average shareholder in Scotland, with 550 shares, who opted not to take part in the cash call will be paid around 73. In total Lloyds is paying out about 295m in profits from the "rump" placement.

Chief executive Eric Daniels yesterday welcomed the support of the 87 per cent of its shareholders who opted to take up the shares on offer.

Daniels said the bank believed that their shareholders would "welcome the removal of the dividend blocker and the 480 million annual saving" now being redeemed to the Treasury.

Exane analyst Ian Gordon pointed out that excluding the stake held by UK Financial Investments (UKFI), the government body which manages the Treasury's holding in the banks, around 23 per cent of shareholders opted not to take up the shares.

While small shareholders rarely take part in rights issues, the take-up level suggests some institutional investors also opted not to buy the shares.

Suspending dividend payments was a condition of taking up the government's preference shares.

A spokesman for the bank said there was no chance it would pay dividends in 2009, and there was no commitment on when it would restore them.

As well as the 2.3bn raised from non-government shareholders, Lloyds is paying the Treasury 300m from the bank's reserves.

This is the first time either of Britain's part-nationalised banks – Lloyds and RBS – have repaid money to the government. The success of the placement keeps the government's stake in the bank at 43 per cent.

UKFI had underwritten the rights issue, meaning if investors rejected it, the government's stake could have risen as high as 65 per cent.