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The combined Lloyds TSB/HBOS bank is to become the largest single shareholder in New Star under the terms of the debt-for-equity swap that will require the troubled fund management group to be delisted from the stock exchange.
After intense negotiations with bankers, led by HBOS, the terms of the swap indicate that the shareholders are being wiped out. The banks could end up owning 95% of the company, which was floated at 225p three years ago and worth £500m at its peak but now has a value of about £20m.
The founder and chairman, John Duffield, has been forced to cede control of the firm to the banks so he can relieve New Star of a £240m debt burden.
HBOS is the lead bank in a syndicate that includes Lloyds TSB, Royal Bank of Scotland, HSBC and National Australia Bank that granted New Star the loan last year. This indicates that the taxpayer, which owns 58% of RBS and an expected 45% of the combined Lloyds-HBOS, will own a substantial part of the company.
New Star's shares closed at 4.75p although the announcement about the restructuring was made after share trading had ended for the day.
Stock brokers Altium have put a "token 1p" valuation on the shares of New Star amid the ongoing uncertainty about its future that has led to concerns about investors withdrawing savings from its funds.
The debt-for-equity talks were announced by New Star in a stock exchange announcement on Monday in which it said it had asked the UK Listing Authority to halt trading in its shares. However, the shares fell almost 70% after the UKLA, part of the Financial Services Authority, refused the request; it argued the request had not been made formally before the announcement was made to the stock exchange.
The terms of the swap include a new incentive package for the fund managers who have traditionally been paid low salaries and received large share payouts instead. Those payouts are virtually worthless given the fall in the value of the company.
- New Star Asset Management
- Investment funds
- Lloyds TSB
- HBOS
- Banks and building societies
- UK banking sector
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