View from City Road: Double blow in currency loans

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The Independent Online
AS FAR as George Soros and most UK companies are concerned, 16 September has become White Wednesday. They may not all have made pounds 1bn, as Mr Soros did, but for most the results are beneficial. For the Government and a small group of other companies, however, it was Black Wednesday.

The companies that lost out include importers - as spelt out below - and those with foreign currency loans, which have risen in value as a result of sterling's devaluation. Considering the popularity of foreign currency borrowings, a large number of companies could be affected.

Shareholders face a double blow. Not only have their companies made a loss on the loan - which has to be repaid with more pounds than they anticipated - but the loss is not tax deductible. This is because for most companies it is treated by the Inland Revenue as a capital rather than a trading item.

Accountants report that chief executives, many of whom have only got around to thinking about their loan exposure with the arrival of the year end, when they draw up their balance sheets, are dismayed. They are determined that they should not take the same risks again.

Their advisers have alerted them to the possibility of moving their treasury operations to another European country with a more generous tax regime. They point to the attractions of the Netherlands and the tax shelters of Dublin and Brussels, already popular for bond issuers.

This argument - that UK plc stands to lose out from unfriendly tax legislation - has become extremely popular in recent months. This is partly because it has found sympathy in the Department of Trade and Industry - if not the Treasury - in the case of advance corporation tax. The fear here is that ACT will force companies to move their head offices and corporate research laboratories overseas.

But whether it can be as effective in this case is doubtful. The best case that can be made is that the City of London could be damaged if market operations migrate abroad to follow clients.

For investors it means the benefits of devaluation so confidently expected to be disclosed in the spring results season could be less than expected.