Building societies expand into more flexible BES: Launches by Bristol & West and N&P will lead a charge, writes Neasa MacErlean

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The Independent Online
Several building societies are expected to launch Business Expansion Schemes by the end of the year, following the unveiling of a pounds 50m BES by the National & Provincial and a pounds 45m issue by the Bristol & West.

Bristol & West has been working on its BES for two years. Other societies regard it as a breakthrough, and some are planning to follow suit.

But the N&P Multiple Choice Growth Scheme is the most flexible yet issued. Like the Bristol & West BES (and several others before), it offers a 'loan-back' facility - an early repayment of the investment that, for technical reasons, must be termed a loan - after six months. The new feature is that it also offers other loan-back dates - after one year, two years and three years.

All higher-rate taxpayers - the people for whom a BES is most appropriate - will get a refund from the Inland Revenue of 40p for each pounds 1 paid into the BES up-front. The level of loan-back they get depends on when they take it. On a six- month loan-back, they will get 74p for every pounds 1 invested which, when added to the tax refund, gives a return of pounds 1.14 on each pounds 1. On a three-year loan-back they will get 98.24p for every pounds 1 invested. All investors in the scheme - whether or not they take out a loan-back - will also be eligible for a potential bonus at the end of five years.

There is no fixed rate of return guaranteed at the end of this BES - unlike many other schemes - but N & P and the sponsors, Johnson Fry, are basing their calculations on a minimum return of 123.5p for each pounds 1 invested after five years. If the underlying investments - N&P's repossessed properties - produce a higher return, 70 per cent of the excess will go to BES investors.

The Bristol & West issue looks less exciting in comparison. It offers a pounds 1.05 return after five years or a six-month loan- back of 73p per pounds 1 of gross investment. Both schemes require investments of between pounds 3,000 and pounds 25,000, and both have come a long way from the Government's BES blueprint - the schemes were designed as a five-year investments to encourage higher-rate taxpayers, through tax refunds, to invest money in small and growing businesses.

Architects of BES schemes have become increasingly inventive, and investors' funds are often invested for no more than six months.

Analysts are more excited by the N&P BES than than the Bristol & West scheme. 'It is a very innovative deal and I will be recommending it to my clients,' said Anthony Yadgaroff of Allenbridge Group, the BES advisers. The Bristol & West BES lacks some lustre in comparison. Mr Yadgaroff added: 'We recommend this for people who are looking for a six- month scheme, but not for those who are looking for a five- year deal.'

Close Brothers, the sponsors of the Bristol & West BES, have been preparing for a deluge. They have brought in 15 extra staff and installed 10 new telephone lines to cope with expected demand early next week.

Prospectuses for the N&P BES are available on Tuesday. Subscription lists open on Wednesday and - on past experience - could also close on Wednesday.

More six-month loan-back schemes are expected on the market soon - particularly in the face of growing anxiety that the Chancellor will put a stop to six-month arrangements when he delivers his Budget on 16 March. There is even concern that he will stop the BES loan- back facilities that have already been launched. But Mr Yadgaroff said: 'I really don't expect that to happen. It would be tantamount to retrospective legislation.'

Some of the six-month deals have been hugely over-subscribed. The recent Flexit BES raised pounds 15m more than its capacity of pounds 50m. Through the funds raised, Fairclough Homes will be renting and subsequently selling 750 houses. The properties will be rented out for the first four years at rates which are fixed to equate to a mortgage rate of 3.99 per cent. At the end of the period they will be sold to tenants at 1993 prices.

(Photograph omitted)

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