Ten funds consider bidding for embattled Kepit trust

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The Independent Online
Ten fund management companies yesterday met the deadline to express an interest in Kepit, the embattled pounds 500m Kleinwort European Privatisation Investment Trust, whose poor performance has sparked takeover bids from many of its rivals.

Among those expressing an interest is Kleinwort Benson itself, together with a bid from TR European Growth Trust, which involves liquidating the ailing Kepit trust and returning the remaining funds to its 66,000 shareholders.

Other proposals put forward to Kepit directors include Morgan Grenfell Trust Managers, the bank's investment trust arm. It is understood that a decision on the preferred option will be made within the next two weeks.

Ben Siddons, director at Kleinwort Benson Investment Management, which is bidding to retain control of Kepit, said: "Our proposals are framed in such a way to provide for the best cash exit for those Kepit shareholders who want to pull out.

"But we believe that the outlook for European privatisations themselves is much improved now. Nor have things been as bad as some critics claim.

Mr Siddons defended Kepit's performance, arguing that this had been over- stated by critics: "As things stand, compared to a share price of 100p at launch, the current ordinary share price is about 93.25p, while the price of warrants is another 5.5p. Kepit has also paid out about 2.85p per share in dividends. Things may not be very good, but they are not a disaster."

The deadline for expressions of interest marks the latest stage in the battle for control of Kepit, whose performance has languished almost since its launch two years ago.

More than 85,000 investors poured almost pounds 900m into the trust, whose aim was to replicate in Europe the spectacular investment successes achieved by privatisations in the UK.

Some pounds 380m had to be returned after the fund was oversubscribed. A similar amount was invested in a separate European privatisation fund offered by Mercury.

The trust failed to live up to expectations. European privatisations were often over-priced, and the anticipated bonanza never arrived.

Assets in the Kepit trust, structured so that it is owned by its shareholders and not Kleinwort Benson, have remained at about the same level, while the price of shares have traded up to 20 per cent below its net asset value.

Earlier this year, Kleinwort Benson proposed swapping 60 per cent of the shares for loan stock which would be redeemed over five years. It now aims to convert Kepit into a unit trust, to provide investors with an exit route and allow continued to invest in privatisation stocks.

TR European Growth (Treg) also stepped in earlier this month to offer an easier route out.

However, critics have pointed out Treg's offer means Kepit investors having to pay multi-million pound fees to Treg and Hoare Govett, its advisers, while liquidating investments could depress share prices in privatisation stocks.

It is understood that several of the other offers are similar, involving unitisation, new management of the trust or liquidating its assets.