Debt fund resisting £183m bid approach from M&G Investment Management reinstates 4.5p annual dividend target it withdrew at the start of the coronavirus crisis.
UK Mortgages (UKML ), the debt fund resisting a £183m bid approach from M&G Investment Management (MAGIM), has reinstated its 4.5p annual dividend target withdrawn at the start of the coronavirus crisis.
With portfolio performance improving as lockdown measures ease and mortgage repayment holidays coming to an end, TwentyFour Asset Management run UKML said it would declare an extra 1.5p interim dividend for the last financial year to 30 June and pay four payments of 1.125p in the current year. This would offer shareholders a yield of 7%, it said.
In addition the company confirmed that from September it would use the proceeds from its delayed refinancing of its Oat Hill pool of loans to buy back up to 15% of its shares if they traded at a discount of more than 5% below net asset value (NAV).
In a ‘strategic upate’ released last week UKML reiterated its opposition to M&G’s 67p per share cash offer, claiming the terms materially undervalued the company.
M&G hit back, criticising the restored dividend policy as ‘unsustainable’ and saying the extra 1.5p dividend had only been paid in order to avoid triggering a continuation vote.
M&G, which is making the approach on behalf of its Specialty Finance Fund, asserted the investment company had not historically generated enough income to cover its dividend, meaning the shortfall would need to come from capital, or selling assets.
According to the asset manager, the annual dividend target of 4.5p per share, costing an estimated £12.3m in total, would be only 57% covered by UKML’s income of £7m for he last financial year.
A statement said: ‘MAGIM believes that dividends significantly funded from capital are not sustainable and MAGIM notes that the additional and uncovered interim dividend of 1.5p per share announced this week, shortly after the announcement of the fourth interim dividend, avoids the requirement for a continuation vote.’
Having started the week on a steep discount of 30% to NAV, UKML’s shares leaped 20% to close at 66.3p, just below M&G’s offer. The mortgages investor, which launched in 2015, originally sought to pay annual dividends of 6p per share, but had to cut that goal last year.
The offer of 67p per share represents a more than 15% discount to UKML’s end of May NAV per share. Under the terms of the proposals, UKML’s shareholders would also be entitled to receive the fourth interim dividend of 0.375p per share.